Getting our heads round the economics of ANTI-Austerity.

Several recent media events have featured aggressive debates where some of the pro-austerity parties have tried to attack or rubbish the policies of the Green Party of England and Wales. This in itself is a good sign (because it is a sign that people are beginning to find the popularity of these policies alarming, and to see that they are winning support both here and in other parts of Europe, as most famously in Greece).

The scare tactics deployed by the aggressive interviewer typically include finding bogeys in the Green Party's policies on immigration, religious extremism and drug control. But the one that I want to consider today is the typical response to the anti-austerity policies, such as fully funding the NHS, raising the minimum wage, renationalising the railways, no tuition fees, and providing a welfare system that will enable everyone to live without fear of poverty or destitution.

The standard question is "But how will you fund this?", and the questioner then doesn't wait for an explanation of how the economics of a modern state works, but assumes that it works like a family budget in which there is a set income, and you decide what your priorities are for spending it. Responsible budgeting, they suppose (or they want their viewers to suppose), is like responsible budgeting at home. If you haven't got much money, and you've borrowed some money already, then you need to spend only that and no more. In fact, you should spend less, so as to repay some of your debts. This is the very muddled economic thinking that has encouraged people to vote for austerity, against their own interests and against the interests of the economy. This is what is now being questioned across Europe. And rightly so, because it is stupid.

That muddled economic thinking is what the politics of anti-austerity parties like the Greens is challenging. So the answer to the question "How will you fund this?" need not have an answer of the kind the aggressive interviewer is expecting (e.g. "we shall raise taxes", or "we shall abolish the armed forces", or even "we shall increase the national debt"). Because, actually it is austerity that leads to increased debt, and cuts to the armed forces, and ill-equipped armies, and a shortfall of income in relation to costs for health and welfare and housing. That is the problem, not the solution, so you should not expect an answer in that form to explain how the better welfare system and subsidised transport, and full public health service and education, will be paid for by the Green Party.

For sure, the Green Party does have a few ideas of things that are wasted expenditure, or immoral expenditure, but the reason for making savings there is not really because one must make cuts to cover the costs of the other good things that need money thrown at them. I mean, for sure, it will help not to be spending billions on out of date nuclear weaponry that is about as useful as the crown jewels but more expensive. But if we needed such things, we shouldn't do that instead of having a good railway infrastructure or accident and emergency treatment in hospitals. We should, in that case, have to do it as well.

So how are these things to be funded? How is the new government in Greece going to fund its new anti-austerity policies. How has it been able to restore free health care and give the cleaners a job again? The answer to this question requires you to stop thinking the way the austerity parties have taught you to think. They want you to think it is like a family with a fixed income to spend. But actually it is not like that. It is more like a business which makes an income by engaging in income generating activities, and inviting its citizens to invest their money in those activities and to make things happen. It's when things happen that money flows into the coffers of the state.

In fact there are two ways this happens. One is that when people (especially the poor) have some money they will spend it, often in local businesses such as the pub at the corner, or the betting shop or the hairdressers. The pub is less likely to go out of business, and instead will be paying rates, taxes and duty on the beer sold, and the people in the pub will be socialising and sharing ideas for things to do to, making connections for their businesses (You need a builder? I know one!) and looking after each other's mental health and welfare. The community is better off, there is less strain on the resources of the doctors and social workers, and the money gets back to the government in taxes to be sent out to the poor again. Similarly, if you give the students an income so that they don't have to work to live, they will spend the money they have on many things. The jobs they currently take will go to ordinary working families instead, who will need less support from the state and will pay income tax, council tax and all the rest. All this money goes round and round, because as business gets better (because there is money in the system) every business can afford to employ someone, or do renovations, or send out produce that employs delivery firms and other distribution methods. And every time the money is spent, tax comes in to the state coffers to be used in support of the welfare state. The system is like investing to get a return, not like spending a fixed income. The income is not fixed. It will go down if there is no productive activity going on. Which is what happens if you cut benefits and cut employment in public services, and cut wages and cut research budgets. You end up with nothing.

Where do you get the money to start this virtuous circle, if you have the situation that will be left by this government where the debt has gone up and no one has money to spend (except the very rich who have siphoned it off to tax havens or loopholes and are not spending it here)? Well, the answer is that you invite those who have some savings, and want to invest their savings in a secure scheme and for interest, to invest it in the government's own savings bonds. So the wealthy pop their money into your coffers, and you promise to pay them interest, or the money back when they need to withdraw it. That's fine. They need a place to keep their money, and you, the government, then put it to use on generating this active, healthy, well educated society. In due course, this will pay its dividends, in fuel duty, alcohol duty, income tax, council tax, business rates, VAT and so on. The private individuals' savings will have helped the state to get back onto the ladder of prosperity that can deliver a fully funded welfare state. And the fully funded welfare state is actually what prosperity depends on. Because you need educated healthy citizens, with an appetite for enterprise and a good environment in which they can expect their business to thrive, with a purchasing power sufficient to allow things to happen.

It is no good helping people to start a business by lending them money. Because if no one has any money to spend, the business will fail and you will never recover the investment. That's the wrong way round. Start with the people who need the services, give them money to spend, and then others will be able to start the businesses they need and make a living from them. Then you will get back all the money that went out to them, because it comes back in taxes and profits and increased spending power at every level of society.

The answer then? It should not really be "We plan to make savings here and here to fund this proposal" but rather "You don't understand: we are talking about making money, not spending it. This is the way you make money. Don't believe what they've told you in the past. That was a way of screwing money out of you to give to the rich. We don't do that. We give it to you so that it will come back to us, seven times over for every pound we spend on the poor and the sick and the aged and the disabled and the unemployed."