How to stop drinking the Kool-Aid


The first step is admitting you have a problem.

The Sydney Morning Herald – (international readers: wait, no come back! I promise this is relevant to you too!) – recently published a superb article by author, architecture critic, essayist, columnist and speaker, Elizabeth Farrelly, about the pernicious effects of neoliberalism, appropriating a line now made famous by student and school-shooting survivor, Emma Gonzales, ‘calling BS’ on the vested interests destroying our country and cities from the inside out.

“Why do we keep drinking the Kool-Aid?” she asks.

“It’s the tired old neo-lib insistence that a smaller slice of a bigger pie is better for everyone. Why? Trickle down. Voodoo economics. The evidence is in, and it’s against them.

“Neo-liberalism dramatically worsens inequality. We’re near the end (I like to think) of a 40-year Western-democracy experiment in neo-liberal ideology.”

Farrelly is correct, (there really isn’t a single word out of place in the entire piece) and I am pleased that the SMH, and hopefully other publications like it, are starting to realise that something is rotten in the state of Denmark. And America. And Australia. And the UK. And Chile. And Venezuela. And the Middle East. Really there is barely a country that hasn’t been touched by the disenfranchising effects of neoliberalism.

But what seems to be missing – both from the piece, and from the publication – is a recognition that it is the very words they have been printing that have convinced us to invest emotionally in what we now know to be a lie. A lie that was used to sell us on the terms of our own enslavement.
Why do we keep drinking the Kool-Aid? Coz you keep feeding it to us.
Neoliberalism has been the main source of sustenance across the mainstream press for nigh on 70 years. Below is a guide for how to identify the lie and avoid drinking the Kool-Aid.

(And on the off chance that there is an editorial director, manager or editor reading this, how not to publish the Kool-Aid in the first place).

Be like Tim Roth. Learn how to identify a lie as it’s being said.

Lies start with the language we use

Words matter. The words we use to describe the economy become our reality.Use the wrong ones and the economy becomes a golem that has the potential to destroy the world. And like a golem, words can both summon and destroy it.

To quote philosopher and author, Damon Young: “If stories are powerful forms of comprehension and encouragement, then they are also powerful forms of misunderstanding and coercion.” It is possible to be complicit in the lie and not even know it. Because recognising the lie requires some basic understanding of how government spending – and money more broadly – works. (I have written about this here, here, here, here, here, here, here and here).

Countless think tanks have been setup to inject language into policy, regulation, media and business, controlling the message by permeating their ideology into almost every aspect of developed life, from politics, technology, money to how we think about ourselves. This is an organised project that has been more than 70 years in the making, perpetuated and sold by think-tanks all over the globe. This includes the Institute for Economic Affairs in the UK, the Heritage Foundation and the Cato Institute in the US, the Fraser Institute in Canada, and the Stockholm Network in Nordic countries who all artfully tweak their rhetoric to suit the cultural particulars of the local population, but that adhere to almost a single objective: the complete takeover of the state by the market.

Here are some facts to help you stop drinking the Kool-Aid:

Benjamin Franklin knows what’s up. This piece of paper is an IOU representing debt owed to you, by the federal government.

Governments cannot run out of money

A federal government that issues its own currency cannot – by definition – run out of money. The deficit is simply the government’s savings account. It describes the difference between what is taxed and what is spent into the economy by the government.

The deficit is not foreign debt. Nor is it local debt.

A federal budget is not like a household, or a business. Because neither businesses nor households can print their own money. Also, when businesses and households go into debt, they have to pay back the principal + interest. Governments do not have to pay back any debt, because they issue the currency. Also technically, it’s not debt in the first place. More on this below.

(The only governments that can run out of money are those who have given up the right to their own currency and central bank. This includes: Greece, Spain, Belgium, Cyprus, Estonia, Finland, France, Germany, Ireland, Italy, Latvia, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain. One need only look at what has occurred in Greece or Italy to understand why it is so important for governments to keep their own currency and central bank. Or
you can read all about it here).

Articles that postulate on the size of the deficit wrongly imply that a government can run out of money. Anytime a politician promises their policies will result in a surplus is telling you that it is going to tax you more than it spends. And what the hell point is that?

The Federal Reserve is not privately owned

Contrary to popular belief, the Fed is not owned by the banks. It was created by Congress (or Parliament), whose chairman is appointed by the President / Prime Minister, and a Board which is a government agency, which pays nearly all of its profits to the Treasury. The same applies to the Bank of England, the Australian Reserve Bank and almost every other central bank outside of the European Central Bank which is an industrial cartel set up by Europe’s financial institutions whose sole objective is to paralyse the power of governments and diminish democracy. To those who claim they want to ‘end the Fed’, one need only observe what happened to Greece to understand what happens when a government gives up the right to issue its own currency.

Central banks are part of the government, and are best viewed as such. Whether central banks lend directly to governments, by buying their bonds or approving overdrafts, or indirectly, by buying their bonds second hand, this is not government borrowing. When the government pays interest to its central bank, the central bank simply refunds the interest to the government as a dividend. The rhetoric we hear about government borrowing is all smoke and mirrors deliberately designed to confuse people.

Governments with their own currencies and central banks do not really borrow in their own currency at all, and certainly not from the central banks they own. Even when bonds are bought and held by the private sector, it is in the form of a term deposits at the central bank, which can be converted into current accounts when they mature. It cannot be debt if the issuer can not ever run out of the means to pay them, nor does it even really need to sell them in the first place. Bonds are a government backed investment with a guaranteed return. It’s a subsidy by another name.

We should all be so lucky.

Government guaranteed investments, tax cuts, or simply paying no tax at all, the system we believe in is making the rich even richer, and hoisting their debt and tax obligations onto the rest of us.


Wealth doesn’t trickle down

In fact a study by
Harvard Business Review revealed that while incomes in the US grew by more than 600% for the top 0.001% of Americans since 1980, the poorest half of the population were shut off completely from economic growth, with a close to zero rise in their yearly income. Tax cuts don’t create jobs.

A recent report from the Institute for Policy Studies revealed that 92 corporations paid less than 20% tax between 2008-2015 and reported a profit for every one of those years. These include banks, defence contractors, telecommunications and energy companies. Collectively, those 92 profitable companies cut jobs by 0.74% between 2008-2016.

More than 483,000 workers lost their jobs from 48 firms collected in the study. AT&T slashed 79,450 positions & Verizon cut 78,450, despite having 8.1 percent and 9.1 percent respective corporate tax rates. 21st Century Fox, paying 15.6% tax eliminated almost half of its workforce between 2008–2016 period.
Aspiration for surplus is keeping you in debt

Governments have weaponised the words ‘deficit’ and ‘surplus’ to convince the public that household balance sheets will improve along with the governments as it moves away from the former, towards the latter, when in fact, the opposite is true.

Deficits do not increase the borrowing requirements of governments, nor do they drive up interest rates. To the contrary, deficits put downward pressure on interest rates, and government debt does not ‘finance’ spending. Rather debt supports monetary policy and the desire of central banks to maintain a target interest rate.

Every dollar the government saves (puts towards surplus), is a dollar of debt households or members of the public must, by necessity, take on.

The more the government spends, the less debt we have to take on. And unlike individuals, governments do not have to pay back their debt, because it issues the currency.

But what about inflation?

All spending can increase inflation, no matter who is doing it, but there is nothing especially inflationary about government spending. Especially if the government is spending more and taxing less; it allows the rest of us to save more and borrow less.

Concerns about inflation are deliberately exaggerated as a means to centrally control prices, justify lower wages, continuing underemployment, inequality, cuts to public services and privatisation.

As for hyperinflation, it is the result of governments trashing the productive capacity of their economy, or having it trashed for them by their enemies, while it continues trying to spend money when there is nothing available to buy. Zimbabwe in 2008, Germany in 1923 and Venezuela today have more in common with each other than you might imagine, and nothing at all in common with Australia, the USA or the UK in 2018.

And for those who hanker after the good old days of the gold standard, or some kind of commodity backed currency, those systems may have avoided episodes of high inflation, but it has not helped the avoidance of regular economic depressions. Whenever such a crisis arose, the system broke down, (
but not before countries were plundered by foreign governments and investors).

The gold standard isn’t coming back. Nor should it. The problems of the Euro-Zone have too much in common with the gold standard in any case, which is why so many Europeans have suffered underemployment and poverty in recent years, (that and the privatisation of central banking and its collusion with the IMF and World Bank
to pull of French and German banking bail-outs in disguise).

We are all Charlie Brown. When will we learn?

Taxes do not fund spending

Taxes do not fund spending at a federal level. The only taxes that do fund spending are state and local governments which are partly federally funded and must therefore collect taxes to make up the difference. The next time you hear a federal government politician use the term ‘tax payers money’ or read journalists who claim it’s your taxes that are paying for this or that, unless they’re talking about state or local government, that is a flat out lie. Taxes do not need to be collected before they are spent. Nor have they ever been. Taxes are a means to control inflation, not fund government spending. In fact your federal taxes are destroyed upon receipt and numbers moved from one side of a government balance sheet, to another.

Until publications stop printing inaccurate, misleading accounts of how government spending works, or simply flat-out falsehoods, we’re going to keep on chugging the Kool-Aid, convincing ourselves that treating governments like a household is an accurate description of how the economy actually works.