Joyce McMillan: Debunking the Tory myth of the magic money tree

Amber Rudd and her Conservative colleagues have been keen to tell the public there is no magic money tree.
Amber Rudd and her Conservative colleagues have been keen to tell the public there is no magic money tree.
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Governments can access whatever funds they need to spend - remember quantitative easing, writes Joyce McMillan.

On Wednesday night, in the big television debate, it surfaced again. It was Amber Rudd, standing in for her boss Theresa May, who spoke the words; but if she had not, then it’s likely that someone else would have done so, probably some angry-looking audience member incensed by the idea of a new age of generosity in public spending.

The phrase in question is “there is no magic money tree”; and it is used with an almost clockwork regularity by those who oppose proposals like those contained in the current Labour manifesto. Free school lunches? No magic money tree. Free university tuition? No magic money tree. A properly funded NHS, or more generous disability benefits? No magic money tree. And so it goes on, in a litany of meanness and misery firmly based on the assumption that there is a finite amount of money in government coffers, and that to spend it in one place is automatically to take it from another.

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And that might, I suppose, have been true, in the days when kings gathered taxes in gold pieces, and kept them in a chest. As Amber Rudd must very well know, though, the phrase when applied to the funds of a modern government is simply a lie. Sovereign governments with their own currency do have a “magic money tree”, in the shape of their ability both to borrow, and to issue as much currency as they please; and they use it all the time, to fund the kinds of spending they actually want to undertake.

So in the Labour manifesto issued last month, Jeremy Corbyn and his party say that they will spend something like an additional £50 billion a year on Britain’s struggling public services - notably education, health and social care. This is a lot of money, no question. It would raise total UK public spending by about 6.5 per cent, and would increase public-sector activity to perhaps 45 per cent of Britain’s gross domestic product, still quite low by west European standards, but higher than of late.

Yet the sums involved are not so huge as to be unthinkable or unachievable; on the contrary, a glance back through UK spending history shows that when it comes to “national security”, sums on this scale can be raised and spent without any mention of the “magic money tree” at all. In 2008, for example, the British government spent £137 billion within a few weeks on the rescue operation to save our principal banks from the consequences of their own greed and folly. Over the first decade of this century, the UK spent more than £20 billion on its unsuccessful and bloody wars in Afghanistan and Iraq.

And between 2009 and 2012, the Bank of England issued an eye-watering £375 billion of extra cash in what is politely known as “quantitative easing”. Even at the time, experts could be heard arguing that this newly-printed money would have a more helpful impact on the British economy if it was simply dropped from an aeroplane on to Britain’s poorer communities, helping the hard-pressed people there to exercise their pent-up demand for new shoes or washing machines or holiday breaks.

Yet instead, it seems it was mainly used to prop up the banking system, and help it rebuild its balances. While real wages fell into their longest decline in more than a century, £375 billion of new government money, over four years, was used not to change the system, or rebalance the British economy, or reinvest in our grassroots public services, but to keep things exactly as they were.

And you do not have to be a genius, in the world of arithmetic, to work out that that is a larger sum, per year, than Jeremy Corbyn now wants to spend on ordinary British people, and the basic public goods that keep a country physically and phsychologically healthy, and ready to meet future challenges. If we look around us, here in northern Europe, we can see that the countries that invest most in their people and their well-being are the ones with the strongest economies, and the most persuasive sense of their own future; the low-tax, low-spend model is for sleazy elected dictatorships, declining great powers, and offshore tax-havens with small populations.

So what is it, in British politics, that makes us shout “no magic money tree” whenever an anti-austerity politician points out this common-sense truth? We never say it when we go to war, we never say it when we buy arms; but the sight of politicians seeking to lavish some cash and some tender loving care on the ordinary people of Britain is enough to provoke this instant response of negativity and meanness, and this sudden false reduction of government finance to something like a household account.

I guess it might be sheer pain that triggers this reaction; I’ve had it tough, why should people in the future have it any better? It might be a genuine failure to understand how government finance works, eagerly encouraged by right-wing politicians; Margaret Thatcher pioneered the “household budget” fib, and it has played well ever since. It might be genuine conviction, of the Dickensian Gradgrind sort, that the world is harsh, unyielding place, and that government policy should always reflect that truth, whether it needs to or not.

If politics is to matter at all, though, sometimes it has to be an act of love, rather than of managerial bean-counting, combined with cringeing fear of those who are mightier than governments. To what seems like the surprise of the entire British people, this general election is shaping up into a pretty memorable battle between the forces of loving kindness, which would offer some care and investment to us after years of austerity, and the forces of mean-minded miserabilism, which would keep bearing down on the austerity button, while yelling about how Brexit will make us great. And while British voters - well trained in economic masochism - will most likely choose misery in the end, the sound of that costed cry of hope, among so much unnecessary pain, is still likely to change the shape of our island politics, for good.