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The rich get richer, while the poor get poorer; (and the economic fallacies we are led to believe.)

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rich and poor

“The rich get richer, while the poor get poorer; that’s austerity, that is.”

Let me start by saying I am no economics expert; but what you are about to read- and possibly learn- is the big lie of government about austerity. I had written this and asked a friend to cast a critical eye over it and she agreed that it is accurate and pointed me to this article, which goes much further in explaining the way government finances work and how austerity does not get a country out of debt.

The Five Big Reasons Why Austerity Has The Opposite Effect From The One George Osborne Expects

If you find my effort at explaining the fallacies we are drip-fed interesting, I suggest you follow the link and read further.

We are told that if you only have £300 coming into your household budget, but have £301 going out, your household budget is in deficit and you cannot continue to run your household economy this way without eventually having to borrow, and this borrowing will eventually have to be drastically reduced or stopped altogether to pay off your accumulated debts. (These are the equivalents of deficit and national debt- and the reason politicians like to discuss falling deficit but not the national debt; because while the deficit is falling, the national debt is still increasing as long as we run at a deficit.) This is self-evident; at some stage you need to adjust your outgoings to match your income.

And so it is with the national economy; we cannot continue to spend more than we earn. This too is self-evident.

This is why, they tell us, the current austerity measures are desirable- essential, even.

But are they?

What we are not told is the difference between a household budget and a country’s budget; they don’t quite work in the same way. Because a household budget is linear; X comes in, Y goes out; if X is greater than Y, we have a surplus; if Y is greater than X, we have a deficit.

A government’s budget works similarly; but, a government’s budget is not linear as a household budget is; it is cyclical. Much of the money in a government’s budget stays within the system. For example, money spent on wages for government employees returns to the budget in paying for the services the government supplies and in taxes. Money spent on benefits returns to the budget in the same manner. There are many other ways a governments expenditure returns to the government coffers. For example, if a government employee spends part of their wages outside the system, on manufactured goods or services from a private company, this company pays tax; it employs people who pay tax and it reduces the benefits bill by employing people. I said a government’s budget works similarly; reading back, it doesn’t really work anything like a linear household budget!

If there is a shortfall, the government ‘borrows’ to make up the shortfall; but again, it is not borrowing as we understand it, though politicians would have you believe it is for it fits their austerity agenda. It is not the borrowing we do when our household outgoings exceed our income, such as bank loans, credit cards etc. The government borrows its own money!

Yes, folks. The government borrows its own money, by selling guilt edge securities which they will buy back from future tax revenue. They are borrowing the taxes they haven’t taken off you yet. It is more a form of gambling than borrowing; the government is saying we will give you this security against a loan, and buy it back when we have the tax revenue to do so, gambling the tax revenues will be sufficient to honour these guilt edge securities. It is similar to a re-mortgage- you re-mortgage your house to pay your debts in the belief your future income will meet the new payments. It is worthy of note here that the British government has never defaulted on a guilt edge loan.

Eventually, of course the government’s expenditure has to be significantly less than its income.

This can be done by reducing expenditure or increasing taxes to meet their commitments. It used to be that the Tories would reduce expenditure and Labour would increase taxes to meet these commitments. Both flavours of politics now tend to the reduced payments agenda, which almost always means that the poor carry proportionately the greater burden through reduced services and benefits and increased taxes.

Currently, the government has decided that austerity is the only way to balance the books. They have further decided to slash benefits to try to do this.

Doing as the government does, and likening this to your household budget, this is similar to balancing your household budget by reducing outgoings on the lowest drain on your resources- remember, much of the benefits being slashed returns to the government in taxes etc. It is similar to reducing payments to your gas, electricity and water services, the essentials rather than reducing payments for luxuries such as your weekly meal out, your night at the pub or that new car or mortgage- the equivalent of the governments tax breaks for the rich.

Finally, it should be obvious from this that franchising or selling public services to private companies puts a much greater drain on the government’s budget than keeping them in-house, not just because of the profits that are creamed off, but because the money is paid out to a private company and much of it is not returned to the government coffers. It is the taxes of the rich that are reduced, while their profits increase arguing that this will encourage growth. It does nothing of the sort. It is pounds in the pockets of the proletariat that stimulates growth- because they are far more likely to go out and spend their pounds on goods and services than to use them to find tax loopholes or put them in offshore accounts.

Austerity may- and I stress may be a necessary evil, but let’s start at the top, cut expenditure where it can make a real difference- and tax the super rich according to with their wealth, or as us old Marxist like to say, according to their ability to pay.


Written by Smiling Carcass

27/08/2013 at 6:47 AM

10 Responses

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  1. Reblogged this on paul8ar.


    27/08/2013 at 7:23 AM

  2. this guy says it straight too:


    27/08/2013 at 7:25 AM

    • Thanks for sharing that- why aren’t the policy makers listening? (Rhetorical question- we all know it’s because they are stinking rich and don’t give a damn.)

      Smiling Carcass

      27/08/2013 at 7:54 AM

      • I think it’s more just that they are too ideologically-blinkered for such a notion to occur to them.


        02/09/2013 at 11:04 AM

      • I don’t believe they are at all blinkered; they know exactly what they are doing and why.

        Smiling Carcass

        02/09/2013 at 12:18 PM

  3. “Much of the money in a government’s budget stays within the system”. Here’s a trick which governments haven’t cottoned on to. All good public expenditure (on hospitals, schools, transport, etc.) increases local land values. If we collected the land rent (via land value taxation with annual revaluation) we could have a virtuous circle of increasing land values => increasing LVT receipts => increased public goods and services => increasing land values.

    The Jubilee Line Extention project cost the taxpayer £3.5bn. Local land owners saw an increase in their land value by £13bn.

    Carol Wilcox

    27/08/2013 at 2:19 PM

  4. I’ve always thought redistribution of spare wealth into the pockets of the rich is a measure that acts in conflict with economic recovery needs. They tend to use money to make more money, it is self-absorbed and not circulating the cash as a revitalising influence.

    Give the same cash to the poor and low paid worker and they will spend it within the confines of the national market place. Stimulating demand that increases industrial output and so falling prices that promote a wider spread of cash throughout the economy. With this reasoning you can see supression of a worker’s wage value can only be detrimental to recovery forces….

    Steven Goodman

    27/08/2013 at 10:53 PM

  5. Reblogged this on HUMAN RIGHTS & POLITICAL JOURNAL and commented:
    In Solidarity!!


    30/08/2013 at 11:14 AM

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