Funding the Future

Why should pensioners and people dependent on social security pay the price when bond investors demand higher returns?

That is the question raised by the latest turmoil in government bond markets.

The Financial Times argues that governments should heed the warning from bond investors, avoid interfering with market prices and confront rising pension and social-security costs instead, making the most vulnerable pay for a crisis not of their making.

I think precisely the opposite response is required.

Government exists to protect people, particularly when they are vulnerable. Its purpose is not to guarantee wealthy asset owners whatever return financial markets happen to demand.

And governments have far more power over bond markets than conventional economic commentary usually admits.

In this video, I explain how the UK could end quantitative tightening, reduce interest rates, stop unnecessary bond issuance, abandon the full-funding rule, reform interest payments to commercial banks, discourage financial speculation through taxation and increase taxes on those benefiting from higher interest rates.

These are political choices.

The deeper question is, therefore, not whether the bond markets have spoken.

It is whether democratic governments are prepared to say no to their demands. That's because if every economic crisis ends with wealth being protected while ordinary people pay the price, something has gone profoundly wrong with the relationship between markets and democracy.

Why are we never allowed to have enough?

Modern economies constantly encourage us to want more: more possessions, more consumption, more experiences and often more debt. Advertising tells us that something is always missing and that buying it might finally make us happier.

But does having more actually improve our lives?

In this video, I ask whether there comes a point when our material needs have been met, and additional consumption adds very little to our wellbeing. Food, housing, security, meaningful work, relationships and participation in society for both work and leisure matter enormously. But once those needs are satisfied, relationships, achievement and understanding may contribute far more to a good life than accumulating still more things.

This is not an argument for accepting poverty. Quite the opposite. Millions of people do not have enough, while others consume resources on an extraordinary scale. Inequality therefore matters not just because income and wealth are distributed unequally, but because consumption is too.

And there is a limit we cannot escape: the planet itself. Human lives are finite, natural resources are finite, and unlimited material consumption is, then, impossible.

Maybe learning what “enough” means is not about giving something up. Maybe it is about discovering what actually makes life worthwhile.

Britain’s economic rules are not laws of nature. They are political choices. And if those choices prevent us from tackling inequality, failing public services, inflation and climate change, then we need new rules.

In this video, I explain why the economic rulebook that dominates government policy is failing us.

Fiscal rules turn arbitrary accounting targets into supposed economic necessities, even when people, skills and resources are available to meet public need.

Inflation policy assumes that higher interest rates can solve price rises even when inflation is caused by shortages of energy, food and other essential resources.

Independent central banks make profoundly political decisions while claiming technical neutrality.

And the pursuit of GDP growth treats producing more as an end in itself, regardless of inequality, wellbeing or planetary limits.

There is another way.

Fiscal policy can focus on managing real resources and meeting public need.

Inflation policy can address the actual causes of rising prices.

Central banks can be democratically accountable.

Finance can serve society instead of dictating its choices.

And economic success can be measured by whether people thrive within planetary limits.

Economic rules were made by people. They can be changed by people.

The question is whether we have politicians willing to do it.

Money is not wealth. That single distinction is one of the most important things economics has to teach, and we have been getting it wrong.

Wealth is the stock of homes, land, businesses, infrastructure, knowledge, skills, health, natural resources and public institutions a society holds at a point in time.

Income is the flow; what we can consume over time.

But financial wealth, such as money, government bonds, and bank deposits, is something else entirely. It is a claim on real wealth, not real wealth itself.

Government bonds are wealth to their owner but a liability to the government. Bank deposits are wealth to the saver but a liability to the bank. Creating more of these claims does not create more houses, more hospitals, or more skills. It simply redistributes what already exists.

Take a house as an example. You can increase a home's value by taking out a bigger mortgage, and on paper your financial wealth has grown. But the house is the same house. No new bedrooms, no new kitchen, and no new real wealth has been created by increasing its price. What has changed is the claim on it, and the power that claim represents.

This matters. Partly that is because private wealth cannot exist without public wealth.  The roads, schools, hospitals and legal systems that make economic activity possible are public wealth, but poverty prevents some people from even having access to them.

At the same time, financial claims are now distributed so unequally that they distort the economy, push up the price of land and housing, and create real poverty without creating any new real wealth.

Tax and regulation are not theft from wealth creators. They are how a society restores balance, reduces excessive concentrations of financial claims, and makes sure the economy serves shared prosperity rather than a handful of balance sheets.

Britain’s charity shops are under pressure. Oxfam is reportedly considering closing up to 100 High Street stores, after other major charities have closed theirs. But this issue is about much more than charity shops.

For decades, charity shops have filled the gaps left as traditional retailers disappeared from town centres. They have provided affordable goods, opportunities for recycling, income for charities and, crucially, places where people volunteer, meet others and participate in their communities.

Now that model is under threat. More people are selling unwanted goods themselves through platforms such as eBay and Vinted. Charity shops are finding it harder to obtain the quality donations on which their profitability has depended. If they begin disappearing from our High Streets, what replaces them?

Another cafe? Another barber? Another vape shop? Or simply another empty building?

In this video, I argue that we need to think much more radically about what the High Street is for. Town centres do not have to be exclusively retail spaces. They could provide housing, leisure facilities, community spaces and the “third spaces” where people can meet without being required to spend significant amounts of money.

This is not just a property problem. It is a people problem.

If the High Street is going to survive, local authorities and government need to start reimagining it now.

Rent is not just the money you pay a landlord. In economics, it means something far bigger, and far more significant.

Economic rent is any payment above what is needed to keep a resource in use.

Land earns rent, because the land already exists and would be there whether or not anyone paid for it.

Risk-free interest on government bonds is rent, because the money already exists and the return is unearned.

And a large slice of what accountants call "profit" is not really profit at all: it is rent, extracted from workers, from customers, and from the planet. In a small business, profit genuinely rewards the owner's skill, knowledge and risk-taking. But in a large company, much of what is called profit is actually a return to monopoly power, brand dominance, or exploitation.

The difference matters, because rent is the hidden engine of inequality. It disguises the exploitation of employees, of people, and of the environment, and it means we overtax work while under-taxing extraction.

The answers to the problems created by economic rents are not complicated.

First, recognise rent. Second, reduce it, whether it comes from land, interest and excess profits.

Third, shift the tax burden away from earned income and onto rent.

Fourth, constrain rents on land and property, control excessive interest, eliminate monopoly profits, and protect workers with better minimum wages and union rights.

And finally, realise that when you tax rent instead of work, you stop rewarding value extraction and start rewarding the people who actually create value. That's what would happen in a just world. 

Nationalisation has become the word British politicians dare not say, and the reason they give is always the same: it is unaffordable.

They claim that just taking water back into public ownership would cost over £100 billion, but that claim is outright nonsense, and it is worth understanding exactly why.

The trick is in what "cost" means. When we nationalised industries in the 1940s, we did not hand over a mountain of cash. We paid with government bonds, typically at 3% interest, repayable over thirty years or more, and in practice then rolled into the national debt.

The real cost of nationalisation is, then, nothing more than the interest on those bonds, and a nationalised business bought at a fair price should always be able to cover that from its own surplus. There is, then, no cash payout, and no one is "buying" anything at a fantasy price.

What might that mean for the water industry? Private investors and lenders have sunk around £100 billion into it, but the industry is not worth that now. Its shares are often worthless, and a fair price would reflect its current, depreciated value. That means shareholders accept their losses and lenders would take a haircut, meaning they get back part of what they lent. They knew the risk when they invested in a privatised monopoly, and they should accept the consequence.

The case for doing this is straightforward. Nationalisation protects essential services that are too important to fail. It lets us invest in their future at the lowest possible cost, because government borrowing is cheaper than private borrowing. And it future-proofs water, rail, energy, and other sectors against a repeat of the calamities privatisation has already delivered.

Nationalisation is not the problem. The misinformation about its cost is.

Most people think only a limited range of ideas is acceptable at any given time, but that doesn't mean they are fixed forever. Ideas in vogue at any given time are said to be in the Overton Window, but the simple fact is, it can be moved.

The proof is in living memory. In 1980, same-sex marriage was barely discussable in Britain. By 2010 it was law.

Margaret Thatcher shifted the window in the opposite direction. She moved government policy away from state ownership and the provision of a social safety net as the accepted norm, replacing them with privatisation and welfare reform within a few years.

The point is, ideas do not become policy because they are "right".  They become policy because enough people stopped treating them as unthinkable.

That said, most politicians never move the Overton Window. They work inside it, using polling and focus groups to figure out which policies to offer that fit within it. That's why, too often, nothing seems to change.

The mainstream media reinforce this stability. They hold most of the power over what is in the Overton Window, deciding which issues are treated seriously and which are made to look ridiculous. Repetition does the rest. Say "we can't afford better public services" often enough and it hardens into fact, even though it is a choice.

But the Window moves when people start thinking differently about what is possible. The fight against corporate tax avoidance is the proof: what was once dismissed as a conspiracy theory became front-page news, which then led to new international agreements to tackle tax abuse. That resulted from years of sustained argument and evidence. That mechanism moved the Overton Window. It is not mystical, and it is not reserved for the powerful. The Window moves because people refuse to accept the choice they are offered and insist on better ones instead.

The national debt is nearing £3 trillion, and almost everything said about that claim is wrong. It is not a debt in the way a household mortgage or a credit card is a debt. It is just the nation's savings.

Here is what that £3 trillion is actually made of: around £2.2 to £2.3 trillion of government bonds held by pension funds, banks and insurance companies; over £200 billion in National Savings; the physical cash in your pocket; and more than half a trillion pounds sitting in the reserve accounts commercial banks hold at the Bank of England. None of it is money the government "owes" in the sense of being unable to pay. The government creates sterling, so it cannot run out of it, and it cannot go bankrupt.

So why do we panic about the interest bill? The government can always pay the interest, because it can always create the money to do so. The cost is a policy choice, not a fact of nature.

The Bank of England sets the rates that drive that £100 billion-a-year bill, and by cutting them, it could save at least £20 billion a year.

Meanwhile, over £20 billion a year is paid to commercial banks on their reserves, a subsidy to bank profits that other central banks have already largely abandoned.

The real danger runs the other way. Trying to "reduce the debt" means higher taxes or deep spending cuts. These could create a recession, falling private wealth, and a poorer economy, with no improvement in the government's financial position.

The national debt is not our burden. It is the savings facility that lets pension funds, insurers and savers hold their money safely, and without it we would all be much poorer. The lie that this debt is a burden is the excuse used to justify austerity, and it is time we stopped believing it.

Donald Trump has stopped pretending. He is waging economic war on Canada. He's imposed a 50% trade tariff designed, in his own words, to ruin its economy, and his stated goal is to make Canada the 51st state. Canadian Prime Minister Mark Carney has already said it plainly: the United States is at war with his country.

This is not a trade dispute. It is a six-part strategy to break a sovereign nation. The USA is denying Canada's right to its own border, belittling its sovereignty, demanding it become an American state, and then using economic force to make refusal unbearable. This is the modern form of what we promised never to appease again.

And that is why it concerns us directly. Britain shares a head of state, a history, and a set of values with Canada. NATO's Article 5 says an attack on one member is an attack on all. If we stand by while an ally is threatened with annexation through economic warfare, we will have learned nothing from the 1930s. Appeasement did not work then, and it will not work now.

It is time to take a stand.