The global pandemic has once and for all destroyed the post-2008 narrative that ‘there is no magic money tree’ and that austerity is ‘required to balance the budget’. In practically all Western countries, so wedded to austerity prior to the pandemic, money started flowing into supporting ‘the economy’ as soon as the first lockdowns were enacted.
And let’s not forget this is not the first time in recent history that this has happened, financial institutions were bailed out in the GFC, deemed too big to fail. Sadly the 2008 bail out of the sector came with too few conditions and too few new regulations to force business towards more ethical behaviour; profit at any cost remained king. Just over a decade later, unrestrained, and unregulated commercial activity triggered a global pandemic that again causes major disruption and a massive economic fallout.
So where did the money come from? Any country that is a ‘currency sovereign’ (which are the majority of countries around the world) can create money out of nothing. The name for this changes depending on political preferences, it may be called ‘quantitative easing’, or ‘monetising government debt’, the fact remains that any currency sovereign can bring new money into existence with a few keystrokes.
On top of that, governments can keep this going for a VERY long time – Japan has been doing this for over 20 years. It’s ‘government debt’ now stands at 240% of GDP, but most of these bonds are owned by the Bank of Japan, which effectively means the debt has been ‘monetised’ (the BoJ could simply erase the balance sheet entry and nothing would change).
With the massive COVID-19 stimulus spending materialising overnight never again can a government say there is no money for a social safety net or to protect and rehabilitate the environment; never again can a government say the funds don’t exist for regulators to ensure that business behave ethically and at the very least within the laws of the land.
Austerity, lack of regulatory enforcement and environmental neglect are the result of political choices based on ideology, and not budget constraints. There are REAL constraints on government spending, but those constraints are found in the real economy – the availability of energy, labour and foreign currency (to purchase goods and services not available domestically) to name the key ones.
Now that we know governments do have the ability to spend, the conversation that needs to take place is WHAT governments should be spending on. Given the evolving climate and extinction crisis, I can only hope that more people start demanding government spending to mitigate the risks and to reverse damage already done.