“In the beginning, man said, let there be money: and there was money,” US researcher Scott Santens wrote in a recent article. Later, in the wake of a pandemic, the US passed three stimulus packages worth $4.8-trillion. Within a year, cash of $1-trillion was sent to 85% of Americans.
“We didn’t pay for any of this. We just did it. None of it was made possible by taxing or borrowing from anyone first, and that’s the big lesson I believe everyone needs to take away from the Covid-19 pandemic. Americans needed money, so it was created out of nothing. The thing is, that’s not new. It’s how money works in any country that issues its own currency,” Santens wrote.
Since then, the US Congress passed a $1.2-trillion plan to create jobs. It is now debating a $3.5-trillion plan to strengthen social security. However, for some reason US legislators have to pretend to believe the country has a debt ceiling.
In SA there is an organisation called Business Unity SA (Busa) that actually believes this country has a debt ceiling, though it issues its own currency. This is absurd and dangerous. Because of this irrational fear of adding even a cent to public debt, the National Treasury ended the R350 a month social relief of distress grant at the end of April.
Three months later SA had the worst social unrest since 1994, which resulted in 342 deaths. The cost of the unrest was many times more than the cost of the grant. Further austerity measures are a reckless gamble on the future of SA — that there will be no further social unrest if the government cuts its spending.
Last week Busa CEO Cas Coovadia released a statement that said the government cannot afford to implement a basic income grant (BIG). However, Busa does not represent hundreds of thousands of SA businesses, including those in Katlehong where its president, Bonang Mohale, comes from, that would benefit from a BIG. Does Busa not understand a basic principle of modern monetary theory (MMT), that a government deficit is a surplus for its members?
MMT economist Stephanie Kelton explains: “Their red ink is our black ink. Just as a six becomes a nine when we view it from another angle, a government deficit becomes a financial surplus when we look at it from another perspective. When the government spends more than it taxes from us it makes a financial contribution in some other part of the economy.” Many business leaders have reached out to me and pledged support for the BIG for a Better SA campaign.
The question is not whether we can afford to pay for the BIG. We must ask two questions. Can we afford not to implement the BIG? How much of a boost will it provide to the economy? In a paper that will be released soon I looked at eight scenarios for implementing a BIG and settled on one. This involves a three-year implementation of a debt-financed BIG for adults aged 18 to 59 at the upper poverty line of R1,335 a month, and extending it to children who currently get the child support grant, which is way below the food poverty line of R624 per month.
Assuming a 60% uptake and a clawback from taxpayers and after taking into account planned spending on the child support grant, the proposal would provide a R360bn stimulus to the economy over three years. This would eliminate poverty, result in an annual average GDP growth rate of 4.8% and create 3.7-million jobs.
The higher growth rate would contain the debt ratio, which would increase to 76.8% in 2023/2024 compared with 77.3% without the BIG using the rebased GDP statistics. If the debt ratio will be the same whether or not we implement the proposal, is there any reason not to have a BIG?
• Gqubule is founding director at the Centre for Economic Development & Transformation.
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