I had a twitter exchange with Adam Lent, with whom I worked at the TUC, last evening.
Adam is, it seems, firmly in the 'we've got to worry about the bond markets' camp of economic commentators, seemingly believing that just around every corner there is a bond vigilante waiting the perfect moment to strike the UK economy down. In fairness, he is far from alone: this logic underpins the whole of the Conservative party's economic policy, although in their case it's not at all clear that they aren't closely related to such vigilantes, if they were to exist.
The last point is, though, the important one. As Paul Krugman points out, often, there is absolutely no evidence that there are such things as bond vigilantes, at least until such occasion that politicians give them the opportunity to strike. German politicians have given bond vigilantes the opportunity to strike at Greece and Portugal; Irish politicians created the opportunity all for themselves. Republicans in the USA are certainly going about creating market turmoil in a way that only they seem capable of, seemingly willingly wishing to destroy the credibility of US debt in pursuit of petty smallmindedness. But the UK? Come on, let's get real.
The UK is far removed from risk of bond vigilante action that to make the fear of something that is such a remote possibility the basis for economic policy is simply absurd. Our average debt in the UK is 14 years old. Our debt ratios are very low compared with most countries. You don't believe me? Then look at this chart of debt to GDP ratios for EU countries using Eurostat data, (hat tip to RWER):
We're doing fine right now, as someone once sang, and historically our debt is so much lower than throughout most of our history that we are in an extraordinarily strong position, and not the opposite.
What is more, the demand for our gilts is high, and rising partly precisely because we have an ageing population, many of whom will want to buy UK government gilts as the basis of their annuities as they come to retirement ( which is why we actually need more of them, and so can afford to borrow). In addition, we have also proven beyond a shadow of a doubt that the government is capable of using quantitative easing to create significant amounts of cash if need be without having any impact whatsoever on the real interest rate or long-term inflation in domestic markets ( all that we are now suffering being the result of government tax policy or commodity prices that are beyond our control, even when adjusting for exchange rates).
In other words, our financial position is at least relatively strong. That is especially true precisely because the euro is in a mess, the dollar is heading for a mess, and like it or not if people want somewhere to put their money then UK gilts look one of the best places to be right now. We do really have an attractive proposition to sell.
In that circumstance an astute government would see the current situation as a position of strength and not look at the markets and think that they represent a threat. They don't. There is a wall of money in the markets that needs somewhere to invest: somewhere where the currency has reasonable backing, there is limited risk of Euro contagion, somewhere where right wing zealots intent on destroying well-being are being held reasonably at bay, where if only a little stimulus were provided to the economy the prospects for growth might exist. Look around the world and, believe it or not, amongst the major nations that leaves the UK as one of the safest bets on the planet.
In the circumstances, the Office for Budget Responsibility report suggesting that the UK has a problem because its debt might rise to 100% of GDP over the next 50 years because of the need for increased healthcare, pension provision, the social services as a result of an ageing population seems to me to be a simple recognition of the fact that we have an entirely manageable position, which we can afford to finance, and which requires absolutely no panic reaction of any sort whatsoever, let alone the demand for cuts that appear to be emanating from right-wing newspapers and others who live in fear of the market.
What those who react in this way ignore is the fact that we have choice available to us in the UK. Partly that's the result of the democratic process (now reinvigorated?). As populations age they will vote for higher proportions of tax to be paid to cover the pensions, health care and the other services they need. The current resistance to making such provision will disappear as demands become apparent and the younger generations realise that this is the only cost-effective way of making provision for their parents. Change is, in other words, possible expecially when the alternative will be seeing the old living in abject poverty. I don't think people will accept that.
More than that though, as is becoming readily apparent, markets are failing in very many ways. I believe very strongly in the importance of a mixed economy, but I also believe that this is utterly dependent upon the existence of firm regulation, sound ethics, accountability, transparency, and the payment of tax by all who participate in those markets so that a level playing field is created between honest, dishonest and just incompetent participants so that all do genuinely play their part in the maintenance of a good society. We do not have that at the moment. We have a society corrupted by bankers. We have a society corrupted by the media. We have a society corrupted by endemic tax evasion in the small-business sector as is evidenced by my research in this area, and we have an enormous tax gap that the government refuses to tackle since it believes that it is better to leave cash in the pockets of crooks and cheats instead of providing healthcare, education, social services and opportunities that the young.
We have the choice of correcting this. In fact we may have no choice but do so: unless we are to see our markets collapse under the weight of corruption we will have to tackle these issues. The cancer that is currently eating its way into the core of our capitalist system has to be eliminated. Then we can also create the basis of prosperity to provide the services that we need.
But to assume in that case that the status quo will continue is absurd. To assume that we cannot take on these issues is also absurd. As absurd as assuming that there is a bond vigilantes around the corner.
It's time to take courage from the facts - not cower in the shadow of myths. I do, of course, call the result a Courageous State.