This is an excellent video based on a talk given by Dr Saville Kushner, of University of the West of England, to the meeting of South West region trades councils on Saturday.
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By what measure is UK debt “historically low”? Genuinely wondering as I thought it was almost unsustainable and growing by the day.
i’m unable to watch the video right now – but the bullets it starts with aren’t promising. first we have a poor analogy between state finance and personal finance, then we talk about ‘pay[ing] off’ the deficit (probably just clumsy language, but concerning in a world where even many politicians appear not to know the difference between debt and deficit), then i’m told that there is plenty of money because of our GDP and bank holdings… and i don’t even know how to begin to express my contempt for such an argument. the final point is just a wave of nothingness.
i hope the actual content of the talk/video is better.
Excellent exposition. Should be broadcast as widely as possible.
There are so many flaws in this video it is hard to know where to begin, but the logic is laughable.
e.g. Deficit means growth which means more tax receipts which means more tax receipts which pays of the deficit. If it worked like that then every government would be borrowing as much as they could.
The argument that our interest burden is low by historic measures is equally flawed because interest rates can easily rise over the long term period during which the national debt will be repaid.
The argument that tax receipts as a proportion of GDP are 4% lower than some other countries is spurious when they run a fairly balanced budget and 14% of our GDP is paid for with government borrowing.
I could go on, but I haven’t got the time.
You don’t have to be a lefty to know that george is getting it wrong. I was at a seminar given by an investment comapny last week. Their view was that history shows that in this position, the one thing you must not do is threaten ecomic growth. If you bugger that up (technical term), everything else you do will fail.
@woolley
Factually debt is historically low – it’s a fact
@theboynoodle
try engaging with it and not ranting
Nobel Laureates share the view
And of course others disagree
But unless you can argue don;t comment
@MarkT
Ditto – do you have an argument – or are you just noise?
@theboynoodle
then i’m told that there is plenty of money because of our GDP and bank holdings… and i don’t even know how to begin to express my contempt for such an argument.
Why do you express contempt?
Because you can’t or won’t understand the point being made?
I’m contemptuous of those, like you, who think about national finances far too simplistically.
I think that the argument is that this video will appeal if you want to believe that everything the government is doing is wrong, but to be honest it is ill-conceived and it doesn’t stand up to a lot of rigourous analysis.
Another example: comparing Debt/GDP figures with those of 1918 or 1945 and the years thereafter is quite misleading. Of course debt was high to pay for the war but equally non-military GDP was very low. The rapid reduction in the rate has more to do with the expansion of GDP as the workforce left the armed forces than it has to do with the state of the economy then or now.
A more relevant discussion point is the fact that the annual deficit has been as high as £170 billion or around 12% of GDP which is high by any measure.
@MarkT
Hang on – gov’t spending on the war effort contributed to GDP
And yes of course non military spending during war was low. are you a specialist in truisms?
But the debnt was real
And we built the NHS and post ware prosperity despite the debt – and doing so paid for the debt
That’ the Keynesian miracle for you
And remember our current deficit is due to recession – bank created recession – which we will only solve when we beging to spend again, by definition
The private sector won’t spend so the state must – and it works!
Prove me wrong – all the data supports my view
@BenM
saying it’s all OK because we have a high GDP is bizarre in a statement criticising others for financial illiteracy… but as it’s a bullet point I can just about forgive them for not putting it in any context.
the statement re. the bank holdings, however, is beyond the pale. of course.. we do own significant stakes in a couple of banks.. and in due course, with careful management and planning of the disposal process, we should end up making a profit.. but those holdings are immaterial to the debt, and irrelevant to the deficit. they are a state asset that should be no more seen as a way to cut the deficit than the sale of the forests was. the implication that we can just nip out and flog them and make all our problems go away is worrying… because quite a few people out there actually think we should!
so i do understand the point that someone is attempting to make. ukplc is not the basket case that some would have us believe. the point is valid, the examples used to make it are not.
oh.. and i’m glad you think i’m being too simplistic, whilst you defend a piece that suggests that an ever-growing national debt is fine because ‘your house ALWAYS has debt’.
@theboynoodle
This is deliberate misrepresentation of what is argued
Please don’t waste my time again
Hello,
I am confused. The figures you are quoting seem significantly different from other figures. This graph lists the total UK debt as 466% of GNP. Can you explain why your numbers are so different? http://www.gfmag.com/tools/global-database/economic-data/10403-total-debt-to-gdp.html#axzz1Fvqpqkhg
thanks!
@Jody
Dent referred to here is government debt
The graph you link to is all debt including mortgages etc
Very different!
@Richard Murphy
Note how its banks that make the UK so bad….
No, but the point is that the fruits of military spending produce precious little tax revenue and when the war comes to an end there are lots of people sitting around waiting to be demobbed and to find jobs as the civilian industries get back up to speed. Hence to look at the Debt/GDP ratio without looking at the raw data and its context gives a grossly misleading picture.
The growth after the war was remarkable, but if I remember correctly the government actually ran an annual budget surplus from 1947 to 1950 and thereafter the PSBR was between 2 and 4% for about 20 years, which is hardly the same as the approach that you seem to be advocating for today.
Massive government deficit spending has never created prosperity. Ask the people of Eastern Europe and Cuba.
The idea that a one time £40 billion purchase of equity in some banks has created the recession and not the £170 billion annual recurring budget deficit is another myth. There has been a loss to the former shareholders who saw £40 billion of value go up in smoke (or bankers’ bonuses), but with quantitative easing and an extra £170 billion a year being pumped into the economy from borrowing the equity injection is chicken feed.
@MarkT
pardon? Ear time tax rates were very, very high. And so were incomes – people worked hard. And so were profits – making planes and bombs.
You utterly miss the point – including the fact no one says by itself owning the banks solves the problem – but as a hub for economic regeneration they might
You clearly believe the credit card metaphor – and it’s utterly wrong
richard.. you can choose whether or not you want to let this comment through, or respond to anything, but i’ve watched the video now and i have points/questions. believe it or not, i’m actually interested in these issues.. i’m not on either side politically and, indeed, don’t think that this is a political issue. it’s about having a balanced and equitable economy that works in the best interests of all of it’s citizens and the wider world.
1. there is a need bust the single narrative
i agree. irrespective on where one stands with regards the the question of whether public spending and income need to be better balanced and how that should be done (tax rises vs spending cuts) it’s profoundly unhelpful of the government to continually claim that we’re about to go bust. it’s true that relative to other countries we’re not in too bad a shape, and whilst the current global economic structure stands, the uk is a long way down the list of countries queuing up for a meltdown.
2. great economists aren’t concerned
perhaps, but how many of our esteemed economists were warning about the debt and asset bubble before the crisis? if more of them had seen it coming, then i’d be more inclined to accept their views on how it should be dealt with.
3. the debt is because of the banks
yes, £100bn is down to the banks, and without that we’d be at less than 60%. well that’s correct, but the £100bn doesn’t disappear just because we don’t like the reason it is there and, more importantly, it doesn’t change the fact that after a sustained boom we were still within sniffing distance of the 60% ratio. finally, the £950bn figure excludes PFI debt and accrued pension liabilities… i understand that these are different, but they are a factor because the future economy needs to pay them off.
4. debt was much higher after the war
indeed, and what was achieved after that was remarkable – but that was a truly remarkable period of technological development and innovation. so it’s not unreasonable to draw comparisons, but times are different now – which also needs to be taken into account.
5. our debt is low-interest and long-term…
absolutely, and this is where, i feel, the tories are being at their most mischevious. i don’t think this is a reason not to seek to reduce the debt, but it is a reason not to go around comparing us to greece and ireland.
6. .. therefore we don’t need to pay off the debt in four years
BOOM.. is our speaker really getting debt and deficit confused? surely not? is he innocently misspeaking, or willfully misleading? you decide.
7. with national debt, when you owe a lot, you borrow a lot.
excuse me? he just says this and leaves it hanging. please.. explain this to me in a way that doesn’t end up with compounding increases in national indebtedness for all eternity. i’m sure that’s not the intention, but this statement is, i’m sure you’ll agree, counterintuitive… so it needs explaining to us dummies. is he just explaining keynes, but getting debt and deficit mixed up again?
8. Tax, tax, tax
I agree that the tax take is not that high, and that there has been a shift to indirect taxation. I actually don’t think that indirect taxes are entirely regressive, as they tax consumption which is a measure of affordability (or, at least, it was before we all consumed with the aid of mastercard). More importantly, I don’t think that wealth inequality is due to regression in the tax system. I think it’s to do with the increase in the money supply, funded by debt, which has been leveraged to the greater extent by the wealthy. add to that the housing bubble which, coupled with low interest rates, has enabled the middle incomes and above to leverage their positions at the expense of those below. where the tax system has failed has been in not dealing with the upturn in fortunes of the middle-class and the moderately wealthy.. rather than not dealing with the super rich. It’s not that the super rich pay their share.. they do not.. but there aren’t enough of them to have created the fundamental fall in the overall effective tax rate. by all means call for a fairer system… but it’s the ‘squeezed middle’ (oh, how i hate that phrase) that need to cough up. alas, apparently they all vote. so when we campaign for more taxes for a better and fairer public sector, then we have to be honest about who’s going to pay for it.
i’m 20 minutes in to the film, and need to go. this is too long already. i’m sorry… but i’ve written it, so i think i’ll post it.
the film has moved onto criticising the banks and, thus far, i’m with it. i think that the privatisation of the money supply is the single biggest contributor to the problem. full reserve banking, anyone?
@theboynoodle
You’re ignoring that bank debt is backed by bank assets – and netting off is allowed in the real world – unless ou think banks’ accounts are misstated
AND IF WE ARE REALLY IN LOW TECHNOLOGIOCAL CHANGE THEN IT IS GOV’T THAT MUST TAKE THE LEAD
(Sorry about caps)
I thought one of the points the video was making was that there isn’t an analogy between household budgets and national budgets.
The problem with public spending is not an existential problem. The statistics comparing countries and also comparing the interest rate burden now with previous years satisfies me of that.
The analysis is simplified and probably does itself an injustice as a result. I would like to have the 13 year period explained more fully. I assume that what it is saying is that extra borrowing that took place recently was raised over a 13 year time scale.
But the deficit is the amount that we are adding to that borrowing as time goes on. At what rates and over what term is that further borrowing being financed at?
If this is merely a depression – a reduction in aggregate demand – then continued deficit financing is a short term measure. But what if the problems in the economy are more deep-rooted. The video in fact indicates that this is the case. To the extent that there are structural problems in the economy then there are structural problems in public sector finances.
The serious debt problem that exists in this country is the level of indebtedness of financial companies. Date in the Budget report of June 2010 demonstrated this. http://www.hm-treasury.gov.uk/d/junebudget_complete.pdf
Chart 1.1 on page 7 refers.
And yet this sector is a much larger part of the economy than it was. So we have a large sector of the economy that needs to deleverage, and as such cannot be a motor of growth. However, and again this was touched on in the video, there has to be a concern about this sector’s ability to provide growth. Rather, what can it do to facilitate growth in other sectors?
I believe that the following is a reasonable statement of the structural problem that face our economy and the world economy too:
1) Over a period of 200 years plus there has been an immense expansion in the productivity of our species because of i) the application of technology, ii) the discovery of coal and oil.
2) The development of advanced (developed) national economies has followed individual paths that have resulted in different levels of inequality which correlate with different levels of social ills.
3) Following on from 2) above. This has occurred even when we are supposed to be following the same (capitalist) system. So how do those individual paths manage to diverge and what does that tell us about the ability of national governments to set their own economic policy in the face of international financial markets?
4) Economic development means the application of fossil fuel based technology and the migration of people from food production to the cities. As more of the world does this the depletion of oil, its rising price and that of food has the real potential to cause serious economic and social problems.
5) The greater application of fossil fuel based technologies around the globe results in destabilising human induced climate change and environmental degradation.
6) So economic growth and more and more of it may not be possible because of the pain of switching the technology base away from fossil fuels, whilst it also inflicts environmental degradation.
7) Further, economic growth and more of it is not a sure route to greater happiness. Most especially where it produces greater inequality. Measuring the success of an economy/society in delivering a greater sense of wellbeing is going to be important going forward.
8) The productive capacity of the world economy periodically suffers destruction and waste in the form of economic crises which means that productive capital and labour lies unused and coexists with unsatisfied needs.
9) The application of technology has revolutionised the productivity of human labour, but without necessarily making the work involved more interesting or fulfilling. Some people would say invariably without.
10) Whatever the achievements of the application of technology to production this aspect of economic activity has, in a number of still significant countries, been overwhelmed by the utility called the financial sector. For instance i) The day to day global movement and trading of electronic money balances from account to account is now a core economic function of some advanced economies which is seen as a stricture on national economic policy. ii) The production of electronic money out of thin air as debt in return for the promise to repay at interest has produced a bloated financial sector which has the potential to further exacerbate if not instigate economic crises.
11) Even though it is the advanced economies now that have large financial sectors throughout the last 250 years the economies that have been seen as “doing well” in a narrow economic sense are those that produce goods. This curious paradox points to the damage of conventional opinions in the 70s and 80s that the whithering of the manufacturing sector as something that was “natural” and even to be desired.
On this whole ‘the debt was really big after WW2 and we built X, Y and Z’ argument:
Didn’t the Americans pay for WW2 and X, Y and Z?
Pedant time I know, but the graph that shows the distribution of taxation over time and between direct and indirect is wrong. VAT at 20% should be 2011, not 2010. Apart from that. Pretty good stuff.
@Richard Murphy
you’re right, of course, that the bank debt is backed by assets. of course, so is all of the debt if you can find things we’re happy to sell. obviously, it’s easier with the bank assets as they are liquid securities that we have no long-term need for.. so, in time, they will be realised. that will help, though at current spending/income levels it buys us less than a year before we’re back in the same place anyway.
i’m not sure i follow your point re technical change. i know you’ve written about the need to invest in new energy sources etc – and i think that you’re right – but that’s not what i’m talking about. technology developed at dramatic speed after the war, notably in communication and transportation.. from the telephone to computers.. it all went mass-market in developed countries like the uk in the last half of the last century. that provided huge ‘easy wins’ for the economy, helping to drive growth in ways that few other countries could match. what are the next great leaps that will enable ours (or any other) economy to grow in such a manner again? new energy sources don’t allow us to do anything new, or anything faster.. they’re just going to keep the lights on when the oil runs out. i just don’t see what’s coming next but, then again, i guess i’d have said the same in 1945.
i think it’s easy to look back and give keynes the credit for our post-war recovery.. but maybe alexander bell and henry ford proved to be just as useful, as as their contributions to the world truly flourished when the instability of the first half of the 20th century, in europe at least, gave way.
@Sean Fernyhough
Thanks for that
Much appreciated and warmly welcomed
I have a lot of sympathy
@The Squeeze
No, we repaid the debt
@theboynoodle
read what Sean has to say
Read what I have said when I argue that capitalism has run out of steam – all the cash it has is not generating new activity – it’s lending it to the state to finance deficits because it can think of no better use for it
The hope is now in the state – because business cannot now meet emerging needs
And business, being aware of this is now trying to capture state services for profit but in the proicess deny the chance of meeting the demand
@Political Penguin
Also shows VAT @ 0% in 1975. It was introduced @ 10% in 1972 I think. Before that there was Purchase tax. Like another commentator, I don’t see VAT as so regressive – you buy more you pay more. I don’t see many poor people buying sports cars so in view of their conspicuous consumption the rich pay huge amounts of VAT. The fact that they pay the same rate as everyone else on a bar of chocolate is neither here nor there.
😯 @Richard Murphy
Nobel Laurates in economics aren’t Nobel laurates. They get their gifts from the Bank of Sweden – as long as they tow the neo-classical line.
Anything that concludes 1.5 million people on the scrap heap is ‘full employment’ is fundamentally flawed at the most basic level in my view.
All of these jesters completely missed the Great Financial Crisis, and therefore their modelling is clearly not a credible abstraction of the real world.
Richard,
Funnily enough Bill Mitchell has a good breakdown of this point in his blog today (http://bilbo.economicoutlook.net/blog/?p=13738)
“But the reality is that of the 81 years shown, the US federal government ran a deficit in 68 of those years (that is, 84 per cent of the time). Deficits are the norm. Whenever the federal government has deliberately tried to run a surplus (and has succeeded) an economic downturn has followed soon after.”
It’s the same in the UK – we’re a net importing nation and private corporations are squirrelling cash at the moment. The deficit is just the accounting identity mirror of those private sector actions.
There is no fiscal constraint in the UK, only real constraints which would show up as demand pull inflation. Until then the government is either taxing too much or spending too little (depending on your political prejudices). Five million people who want work and are without it is evidence enough of that.
@Richard Murphy
I’m quite sure the USA did pay for WW2 and X, Y and Z you know Richard. Lend Lease? The 1946 Anglo-American Loan (60 years at 2%) and the Marshall Plan? Not to mention all the soft IMF loans of the Bretton Woods era.
Now, whether the UK should be trying to raise more in taxation or cut spending, whether spending should be no more of 40% GDP or more like 60% GDP seems a perfectly reasonable thing to debate to me.
Trying to argue that two world wars didn’t bankrupt the UK and that all the post war public spending happened because of genius labour party policies and not US aid just seems silly.
The US was very clever, by making grants rather than loans after WWII the recipients spent their dollars on US production.
Oh, and China have learned that lesson well.
@Carol Wilcox
If you think about it, you can only really ever spend US dollars in the US currency zone. That’s the only place where they are accepted in return for real stuff.
What the US has done since WWII is to expand their currency zone across the world, which makes people using dollars for trade at least partially part of the US zone rather than their domestic one.
So you have countries like Ecuador that have the same fiscal restrictions as one of the States of America, but without the benefits of any Federal transfer payments.
From
http://www.thegoldstandardnow.org/the-lehrman-gold-standard-articles/john-d-mueller/100-go-forward-to-gold-how-to-lift-the-reserve-currency-curse
Go Forward to Gold – How to Lift the Reserve Currency Curse
Originally published in National Review.
THE most disturbing aspect of the current financial crisis is that no U.S. official has correctly identified its primary cause. Experts variously attribute the economic reverses to subprime lending, derivative trading, excessive leverage, and regulation that was either too lax or too strict (take your pick), but these are symptoms rather than causes. Ignored is the main culprit: the dollar’s role as the world’s main official reserve currency. Though he almost certainly doesn’t realize it yet, President-elect Barack Obama will either set the dollar’s reserve-currency status on the path to extinction or risk becoming the next victim of what we call “the reserve-currency curse.”
Read more: http://www.thegoldstandardnow.org/the-lehrman-gold-standard-articles/john-d-mueller/100-go-forward-to-gold-how-to-lift-the-reserve-currency-curse