How are you going to pay for it?

Richard Murphy in Tax Research UK:

The most dangerous question in political debate in the UK is the one always rolled out by every journalist, on air or in other media, which is to ask a politician ‘How are you going to pay for it?’ where ‘it’ is whatever the politicians has just proposed to do.

Why is the question dangerous? Three reasons.

First it assumes that the government spends other people’s money. It doesn’t. It spends it’s own. That’s because it actually creates all money at the end of the day (even that put into circulation by private banks is done under government licence). And because it creates all money there is technically no limit on the amount it can produce if it so wants.

Second, this means that the assumption that the government behaves like a household with regard to debt is just wrong. Households can’t create their own money out of thin air to repay debt but governments it’s their own currency and central bank (as the UK has) can. £435 billion of quantitative easing since 2009 proves this and yet everyone pretends that this has not happened, which is ludicrous. The fact is that governments and households are not the same at all because households may be constrained by the need to repay debt but governments are not.

Third, so long as the creation of government debt keeps pace with inflation and it does not overheat the economy by trying to create more than full employment then government debt is not a problem any more than having money in your pocket is a problem. And that’s unsurprising because the money in your pocket is government debt. And all UK government debt is just a giant savings account for those who want an ultra-safe place to deposit their money, and what’s wrong with that?

My emphasis.  I think that’s the key rebuttal; we just created the money to bail the banks out and the sky hasn’t fallen in.