There's one particularly popular and potent myth about the economy which gets repeated by journalists, politicians, even some economists, again and again. It's the idea that the government is basically like a big household. It has money coming in and money going out, and it needs to balance the books, not get into too much debt, and not overspend.

This is bollocks.

Here are some randomly selected tools who should know better:

• "The money has run out" - David Cameron, 2009
• "The root of our problems is too much debt" - George Osborne, 2009
• "Iron-clad fiscal rules" requiring balanced budgets - Rachel Reeves, 2024
• "The harsh light of fiscal reality" - Keir Starmer, 2024

All of this suggests the government is waiting around for income before it can pay the bills, just like you or I would have to. But the government isn't you or me. You and I are money users. The government is a money creator - the only entity in our economic system with that power (apart from banks, but in a very different way as we will come to).

This matters. A lot.

If you create the money used in your economy, your role is completely different to everyone else's. You don't wait to get paid before you have money to spend. You don't need to borrow when you want to buy something. You literally cannot run out of the thing you create.

So how does it actually work? 

1. Government spends money into existence first - paying for the NHS, roads, pensions, whatever. 
2. That spending creates economic activity. People earn wages, companies make profits. 
3. Then that income gets taxed. The tax drains money back out of the economy, which helps control inflation and manage inequality. It also does one other critical thing which I'll get into in another post.

But here's what tax absolutely does not do: fund spending. Spending comes first. Tax comes later. The complete opposite of how your household works.

This all kinda accidentally opens up a whole can of worms about "taxpayers' money" and the idea that taxes are just the government stealing your hard-earned cash. Turns out there's a lot to unpick here. Who knew tax could be so interesting!?

But anyway here's what you actually need to know for now:

1. Tax and borrowing do not fund government spending
2. Spending comes first, tax comes later
3. Government borrowing is a choice made for political reasons, not an economic necessity
4. The government does not need to "balance the books"
5. Your country is not your home

Standard disclaimer applies. I am not an economics expert, this is one part of my understanding of a complex subject. I write this because it interests me, that is all.