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A deficit spending scam brought down the United Kingdom’s prime minister. Who’s next?

A deficit spending scam brought down the United Kingdom’s prime minister. Who’s next?
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A deficit spending scam brought down the United Kingdom’s prime minister. Who’s next?

With its disguises as “high finance” for the mystified and “Keynesian fiscal policy” for those “in the know,” deficit spending by the government was quite a successful scam for a long while. When the UK’s ex-prime minister opened her new government in September, Liz Truss followed tradition by trying to run the oft-used scam again. But this time it did not work. Eventually, even successful scams stop working. Its failure became hers but also her party’s, the Conservatives.’ Neither of them understood the scam’s limits. Perhaps its disguises had worked best on those who repeated them most in thought and word.

This article was produced by Economy for All, a project of the Independent Media Institute.

In its UK version, the deficit spending scam entailed the Conservative (but also some Labor) governments repeatedly cutting taxes on corporations and the rich. Serving their donors explains most of this. Without this scam, such behavior would have forced governments to act in traditional ways they now sought to avoid. One way would be to raise taxes on others to offset tax cuts for corporations and the rich. Governments only dared to do that partially, never enough to compensate for revenues lost from the tax cuts benefiting corporations and the rich. The other way would be to cut government spending. Governments did that also, especially when the Conservatives recast public services as unnecessary, wasteful, counterproductive, or in short, “socialistic.” But doing so angers the masses and risks losing votes for the government. Even when the masses could be distracted by campaigning against select foreigners (via Brexit against Europe and via Ukraine against Russia), public service cuts never compensated for what corporations and the rich were saving by having their taxes cut.

Enter the scam that claimed deficit spending “solved” the governments’ problems. Governments could 1) keep cutting their rich patrons’ taxes, 2) avoid offsetting tax increases on the middle and poor, and 3) avoid social service cuts. The scam was to spend without imposing taxes to raise the funds required to support spending (“deficit spending”). While deficit spending violated traditional rules for governments to balance their budgets, new and extreme economic threats (the dot-com crash, the Great Recession, the COVID-19 crash, and the sanctions war against Russia) justified trying to implement the scam. Alternatively, deficit spending could be justified as practical, a regrettable necessity of managing those recurrent business cycles.

Deficit spending came to be politicians’ magic sauce. It enabled them to boast about all they could spend on (for employers and employees) without raising taxes as if doing so flowed from the governmental efficiency of politicians. Governments could pander to corporations and the rich without it leading them to impose government austerity measures on the rest. The 1 percent gained a lot while the 99 percent gained a little.

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