True Fiscal Recovery – Make the Poor Richer
The idea in summary
The Government’s current plan of using infrastructure projects to reflate the economy is doomed to leave little sustainable employment legacy, and to lose much of the money out of the system before a penny is spent in the corner shop.
A financial crash would be a cataclysmically irreversible consequence. A fiscal recovery plan should concentrate on jobs in education, health, local industry & manufacture, and sustainability. By local development of people, skills, productivity and systems, the money would circulate through the Treasury many times before being lost to ‘fiscal entropy’.
The problem to be addressed
The rich get richer, and the poor get poorer*. In the UK from 1979, Maggie Thatcher’s monetarism indeed cultivated wealth, and free markets generated billionaires. However little prosperity percolated down to the poor, as she had hoped. 34 years later, with the Gini Index rising year on year, both in the UK and in the world, income inequality was regarded as the number one threat to global fiscal stability*. Fast forward another 6 years, and the problem was worse*. Then came COVID*.
The danger
Fiscal systems do not unravel in a linear fashion – when they crash, they crash*. Tipping points can fomented by, for instance, banking crises; foreign debt-ownership; and downward spirals in employment in communities.
And, also, pandemics.
We do not know in the UK how far pre-COVID economic policies might take us before implosion, but the likelihood is: not far.
If money does not percolate through to make local communities thrive, this has a spiralling on-cost: Putting aside the price of mental health, marital disruption, social unravelling, loss of community, and ghost-town high streets, there are hard fiscal costs to be faced if we continue to make the rich richer at the expense of the poor: £10bn debt write-off*; £50bn mortgage write-off*; £20bn benefits increase from current £100bn* to £120bn; tax and VAT lost; business closures; industrial downturn; and increased need for imports.
Furthermore, a negative spiral ensues: the poor stop spending; businesses cease trading; more jobs are lost; more go on benefits; more unravelling of social fabric; more un-healthiness; more mental illness, homelessness and drug use; and poorer long term education and prospects. These effects will hit the disadvantaged the hardest.
The solution
Whether a solution is truly wanted is normally a matter of politics … and, it has to be said, the sometimes economic-unsustainability of leftist solutions. However, the UK, in this extraordinary year, will face economic challenges of such potential calamity, that the time is surely now to put politics aside.
The solutions to financial inequality have been well-studied, and the top three components, (According to the New Economics Foundation), are: jobs in communities; education; and ‘localisation’ rather than globalisation of markets.
How do our current plans for infrastructure projects score against these criteria?
Answer … nought out of three.
The problem with infrastructure projects
Vital to the idea of avoiding a financial crash, is that the money circulates around communities, creating an upward spiral of jobs and prosperity. By contrast, the Government intends to invest £600bn in infrastructure projects*, in the anticipation that all would eventually get their share of the ‘pie’. However, most of £600bn budget would not circulate at local level:
• £100bn lost to construction companies’ 20% profit*
• £100bn goes out of UK circulation from high manager* and exec salaries***
• £100bn goes offshore at the bottom of the scale. A construction worker for a multinational is not typically part of a small community, nor is it part of a local career ladder. 40% of London’s construction workers are foreign nationals*
Of the remainder, little would build long-term productivity and prosperity in communities; little would impinge on education; and little would reduce the need for foreign debt.
In short, if £600bn were spent on large-contract infrastructure projects, the disadvantaged would almost certainly be more so, and stuck in that rut for perhaps a generation.
An alternative
Ordinary jobs that form the backbone of communities, are not expensive. For instance, an average health care or educational assistant salary is £18k*; and £30k would pay for an average teacher*, manufacturer*, or environmental health officer*. If even an annual £25bn (4%) of the proposed £600bn were spent on employment such as this, it would create 1,000,000 jobs.
Furthermore, with the knock-on effects downstream of prosperity, such cost becomes more rather than less affordable with time: Take as an example a Teacher + Heath care worker employed instead of being on benefits: They would:
• bring in £50k and pay tax.
• not default on their mortgage.
• spend locally – thus corporation tax and VAT; upward economic spiral.
• come off benefits.
• be part of a safer more prosperous community, with less strain on police and social care.
Businesses, manufacture, and tourism also need to be rebuilt. ‘Made in Britain’ needs once again to be our proud aspiration.
Finally, of course, infrastructure will also need to be part of the deal, but to serve the purposes above, rather than to make a few more billionaires whilst we can.
Summary
“What do you want to do when you leave school?”
“I’m hoping to build a career in security-guarding construction sites.”
Not.
This year, we in the UK need to free ourselves of right and left politics; and of getting into bed with big business and multinationals. We need micro-economic and educational development to create local wealth and employment; to take people off benefits; and to nurture an upward spiral of community prosperity.
It’s time for the poor to get a break.
References
https://drive.google.com/file/d/1AsgH6bQwbTmfNJKdSWeMKIHbtso4Tbpb/view?usp=sharing
1607-11