The party defines itself by the five core policies. So that members and non-members clearly understand what the party stands for, these cannot be changed. At present they are principles the details of which will be decided according to the party constitution
All other policies will be decided according to the constitution
Below is a provisional list of headings for the Mani-festo each with a link to a page
That page contains provisional ideas for discussion.
Read this, as work in progress. Only DRP paid up members can comment and so if you want to have your say:
Constitutional Court Supreme Court
Functions of Government Public Services Board Monetary Policy Board
National planning strategies
Coordination of regions
ISSUES DISCUSSED IN THE NEWSLETTERS NOT LINKED TO THE MANIFESTO
British Republican History
2.Changes in government finance to avoid escalating debt
We are currently in a situation where the government debt is so massive that it can never be repaid.
The idea that government debt could be repaid by “austerity” measures was always a non-starter. Cutting back, as austerity demands, shrinks the economy and so less tax can be collected from it, creating a downward vicious spiral.
At the beginning of its life the coalition said a shrinking government would allow the private sector to step in to grow the economy. This argument has now been dropped as the fantasy of it has been demonstrated to all without a doubt.
The problem of government debt is thus “structural”, that is to say, it has arisen not just from any particular policy or mismanagement (however poor these may have been) but because increasing debt is intrinsic to the system under which we operate.
Under this system, in order for there to be no debt the government would have to be able to pay for all its expenditure out of taxes. With the profitable state industries the nation once owned all sold off and the proceeds of the sales squandered, there is now no other income.
This puts the government between a rock and a hard place.
If it increases taxes the tax burden becomes too big in relation to the economy.
Businesses are not profitable enough to make the economy flexible and dynamic and individuals lose their purchasing power so reducing demand in the economy. The result of too high taxes is that the economy stalls.
If the government take the alternative option of reducing its expenditure by cutting public services, cutting capital projects for new infrastructure, cutting education and so on, private businesses will function poorly as all these government provisions are necessary for them to function and to maintain a good, active, healthy work force.
In a modern capitalist economy (and there really is no alternative to capitalism), you can never collect enough taxes to pay for government provisions, however, efficiently managed.
The present coalition is forever accusing Gordon Brown for not balancing the books while Chancellor and then Prime Minister and while it is true that government finances were horribly mismanaged by him, this does not alter the fact that it is intrinsic to the way government finances are currently run that there will almost inevitably a shortfall.
The Coalition is no better than Brown, in this respect, and indeed there is no western democracy were the government has managed to balance the books except for short periods.
This is why the government borrows more and more every year and inevitably reaches the stage we are at now where the repayments on the interest are so vast that there is no repayment even of the principal and so the debt continues to balloon as it is doing at this moment.
At present the shortfall between expenditure and tax revenues is made up by government borrowing. Most of this comes from the selling of bonds, which are simply interest-bearing IOUs, mainly to private individuals, pension funds, other states, and banks.
A smaller amount comes from national savings and premium bonds, mainly bought by private individuals.
There is a great injustice involved in the use of bonds to finance government debt. We need to ask the question: how is it that there is always enough private money available not just to by British government bonds but the enormous supply from other western nations?
Some of this money is not strictly private as some states (such as China) are big purchasers, but this is not sufficient to account for the fact that British bonds are always purchased when offered on the market – even if as now there is some discussion about the interest rate that should be attached to them.
The short answer to this is that the controllers of finance, in banks, hedge funds and other financial companies, have devised ways of exponentially magnifying the amount of money in circulation– even when there is little corresponding expansion of the real working economy.
This new money is mostly in the hands of those belonging to a new phenomenon of our age – the global superrich.
They need a home for their money, that is to say, it has to be placed somewhere where it will gain profitable interest - or at least not lose too much in value. Government bonds are ideal for this role (but not the only one, of course) and they are highly secure. So there has developed a symbiotic relationship between the superrich’s accumulated wealth and governments’ accumulated debt.
There is a further highly importance twist to this relationship between superrich and governments, for the former evade being taxed in any country by locating their wealth in tax havens – most of the principle ones being British territories under the Queen. This further deprives the governments of revenues forcing them to borrow ever more so reinforcing the transfer of wealth from working tax payers to the superrich. The latter are people who have no loyalty to any particular country and certainly not to us.
This is the situation we have no arrived at. And there are other processes that lead in the same direction. Politicians indulge in a game of smoke and mirrors with their sights no further than the next election. Within the present setup there is literally no way out for tax payers.
So what is to be done? As we said, the money is found to buy bonds using clever financial “instruments” that effectively fabricate money within the private banking system. But if the banks can create money with all sorts of wheezes, the government can do it more simply. The government can simply “print” the money it needs instead of borrowing from private people and companies.
So why does it not do this and avoid having more debt?
It says it does not do this because of a piece of academic economic theory which holds that if the government creates money the effect will be inflationary. So the effect of having more money in the economy will push up prices undermining the spending power of working people. This is the orthodox theory - but is it right?
The theory can be shown to be wrong but without going into its technicalities, just by looking at what happens in practice. The zeros decade was a period of enormous expansion of the money supply. This was lead mainly by the expansion of bank credit. But during this decade the Consumer Price Index was relatively stable and low. You could not see any correlation between shopping basket inflation and the money supply. However, when you look at asset prices it is a different matter. House prices ballooned, as we know, but so did other types of assets such as stocks and shares.
The conclusion from this period (and others) is that an increased money supply goes into assets prices not shopping basket prices.
This is the danger that has to be addressed when the government starts to print money to pay its bills. How does the government avoid this danger?
It does so by ensuring that new created money is used for government investment in the future which will sooner or later provide a return in the way of increased tax revenues. In this way it is investing in a similar way to a private company except the latter has to either have the money already from profits or it has to borrow it from a private bank. The government has a big advantage in that it pays no interest on the money it creates – but then the government represents all of us so all of us benefit to some degree, directly or indirectly.
Paying for services at the government goes along should be paid from taxes for the most part. The additional money will in effect be reimbursed from higher tax revenues and so there will be no increase in the overall money supply. As explained, this is important, otherwise asset price rises will happen. Why is that a problem? Because excessive asset prices result in excessive differences between the well-off and the less well-off which in turn makes for injustice and social disruption?
Does this mean the government should have no debt? No it does not. But the debt it has must be only to British citizens. This means that British tax payers owe money only to British tax payers. We cannot continue the present situation whereby they are indebted to all and sundry across the globe to people who do not have British interests at heart and have come by their money frequently by suspect trails.
There are three ways in which we can ensure that British government debt is only owned by British citizens. We can revamp National Savings and make it possible only for British citizens to hold them. We can make it possible for only British citizens to hold British government bonds. And when we say “British citizens” this must include funds that can only be held by British citizens – and this means above all British pension funds.
A third more radical proposal is the creation of national shares in place of bonds. Again these could only be held by British citizens and they would be traded in a special exchange. They would acquire their value by virtue of the dividend that the government paid each year and the government would have to maintain good interest payments firstly because if it did not it would lose votes and secondly to maintain the value of future issues. Thus the citizens would have a safe home for their savings that could be redeemed at any time and the government would wipe away debt and replace it with equity held by citizens.
Some have argued that the government should print money to get rid of all of its debt. But this would have two malign effects. Firstly, excessive money creation would result in a ballooning of asset prices. Secondly, it would deprive people of a stable place to put their savings. Thirdly, it would increase the cost of company overheads forcing some into liquidation. In sum, ballooning asset prices have the malign effect of shifting economic power away from wealth creators and to wealth holders.
It will be one of the jobs of the government to run the money supply so to as to provide vehicles for savings, stabilise property prices, keep taxes low and have sufficient for public services.
The crucial element in this is that what money creation takes place will be solely in the hands of the democratically elected government instead of as now in the hands of the private financial companies and the complicated instruments they use to fabricate new assets classes that then can “secure” leveraged finance.
Need to have capital controls to stop importing property price inflation
Does not apply to commercial property
Leave a comment here.
We need your views. Join the debate!
© COPYRIGHT. All content of this website unless otherwise indicated is the copyright of Peter Kellow. You may freely quote and republish content on condition that you acknowledge the author the source and give the link to the website www.democraticrepublicanparty.co.uk