John Plnder, in the Financial Times today, has asked whether public debt in the developed world has become “fundamentally unmanageable”. The argument runs as follows:
- Debt is rising.
- Growth is weak.
- Interest rates are higher.
- Demographics are unfavourable, and
- Inflation can no longer be relied upon to erode liabilities.
Therefore, harsh bond-market discipline awaits.
That conclusion, however, is not just wrong: the article itself supplies the evidence for why it is wrong, but then draws exactly the opposite lesson.
Firstly, the article describes a savings glut and then blames governments for absorbing it. Plender notes persistently weak growth, excess savings, demand shortfalls, and rising reliance on public deficits. What it never acknowledges is the obvious implication, which is that the private sector is not investing enough.
Corporations are hoarding cash. Wealthy households are accumulating financial assets. Pension and insurance funds demand “safe” stores of value. There is a savings glut, and, as sectoral balance analysis shows, the excess private saving must be offset by deficits elsewhere. If households and firms will not spend, the government must. Public debt is therefore not evidence of irresponsibility. It is the mechanism by which the system avoids collapse. Wynne Godley demonstrated this in the 19900s. It seems that FT writers have not noticed, or used his economic identities to show what the problem is. The article treats the resulting growing government debt arising from savings as a problem. In fact, it is the only solution to a failure that the private sector refuses to correct.
Secondly, what Plender does not note is that the savings glut is inequality made visible. He talks about demographics and politics, but avoids the central issue, which is, of course, inequality.
When income and wealth concentrate at the top:
- Money stops circulating.
- Consumption falls relative to output.
- Investment becomes speculative rather than productive.
- Demand weakens, and then
- Governments must intervene to stabilise the economy.
Governments are then accused of burdening future generations, as Plender does (relying on the household analogy to do so, of course). This, however, reverses causality. Public debt is not the cause of stagnation. It is the consequence of an economy organised to funnel income upwards and leave it there. Debt is not the burden. Inequality is the burden. Debt is how its macroeconomic consequences are temporarily managed.
Thirdly, in this situation, the interest payments reward inaction and entrench the problem. Plender laments rising interest costs as if they were an external imposition. They are not. Interest is paid to those with surplus wealth because they choose not to invest productively, putting their money at risk as a result, in the hope of profit. The alternative, arising from their chosen inaction, is that under current conventions the state rewards them for holding inactive financial claims rather than building housing, energy systems, transport or productive capacity.
This is the deepest contradiction in Plkender's argument. Governments are criticised for rising debt while being required to pay income to the very actors whose failure to invest made that debt necessary. He fails to note that interest payments are not neutral. They are a transfer to wealth, enlarging the savings glut, increasing inequality, and ensuring future debt rises further. This is a massive error on his part.
In part, that is because Plender assumes markets dictate interest rates. They do not. His conclusion depends on the claim that markets ultimately impose discipline through yields. But this only holds if central banks choose not to act. Policies set:
- central bank base rates,
- central bank reserve account remuneration,
- bond market interventions, and
- regulatory frameworks.
The aim is to anchor yields. QE proved this. Yield-curve control proves it daily in Japan. Rising yields are not market verdicts; they are policy decisions dressed up as inevitability. Calling this “discipline” is a political choice, not an economic law.
Somewhat bizarrely, Plener cites Britain's post-1945 debt reduction as evidence for discipline. But its own account shows otherwise. Debt fell because:
- Growth resumed.
- Inflation reduced real liabilities.
- Interest rates were kept low by institutional design.
The welfare state did not obstruct this. It stabilised it. The lesson is not that markets must rule, but that governments can choose the rules under which debt evolves. Plender ignored that.
The real conclusion in that case is not that public debt has not become unmanageable. What has become unsustainable is an economic system in which:
- Excess private saving is treated as virtuous.
- Inequality is ignored as a macroeconomic force.
- Excessive hoarding (matched by underinvestment in real economic activity) is rewarded with interest, and
- Democratic governments are told they must appease markets.
The FT article does not describe a crisis of public finance. Instead, it reveals a crisis in our economic narratives, which insist that governments are the problem, whilst carefully avoiding the evidence that makes clear that government intervention is unavoidable.
Blender ends with a warning that we might be facing a 1929-level crisis because of government debt. I agree that we might be facing a crisis, but he has all his causations wrong. We are facing a crisis because antisocial neoliberal capitalism is coming to the end of its road and has no answers left to offer, just as Plender has none to provide. The reality is that until the economic narrative changes, and we understand the crisis neoliberalism is creating, debt will keep rising, not because states are reckless, but because we refuse to confront the causes Plender so clearly describes, but fails to recognise.
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These same and very wrong conclusions are also part of that middle-class-received-wisdom-enforcing-foghorn called Radio 4 this morning. I just just can’t listen to it anymore?
Even the better genuinely concerned humanistic contributors are way off the mark with causes and possible solutions. It’s very hard dealing with such a badly informed ‘commentariat’ when there is so much better informed outlets like this.
As much as I agree with the post, what screams out to me is ‘double entry book keeping’. What we are calling ‘debt’ – a choice of name only – is actually just a ledger line of expenditure into the economy that benefits all the actors in that economy – well – as we know – not as many as it could be. But that is the principle.
And then the usual question arises. If there is a threat, who is issuing the debtors notice/red bill? Who will be sending the boys around? The bailiffs? Goldman Sachs? Barclays? Who? Who is it that the money is owed to?!!
I suppose this post reminds us that this truth is going to have to be perpetually repeated until ‘they’ get it.
That repetition is, I think, going to be a theme for 2026.
In fcat, James is planning how we do that right now over a wide raneg of social media. Do we have an alternative?
No, I don’t think there is an alternative – and I am not criticizing your efforts either or implying that I find it boring. I hope you don’t think that?
But Neo-liberal bullshit got taken seriously because of actual economic crises (oil shocks, changes to global currency management etc) and then the blame was put on progressive political polices, so that they were perceived as the problem.
By rights, there have been economic crises a-plenty to the point where it is Neo-liberalism that should be abandoned. But still, it is here. Why?
Because it did always appeal to capital whose instinct is simply opportunistic and monopolistic – to dominate. The banks and the rentiers do not want a mixed economy of anything – money origination or trade or markets. This is why crypto is also gaining traction. They want to cut out government altogether.
So, repetition it is. It must be.
As for ‘Plender’ or ‘Plnder’ – however you spell it, his name ought to be ‘Plunder’ because that is all he seems to be advocating.
“this truth is going to have to be perpetually repeated until ‘they’ get it. ”
They won’t, ever, their salaries depend on them not “getting it”.
Obvs, pig ignorance also helps (can Plender even understand accounts? doubt it).
The FT and other rags fall into the same class as Pravda in the 1980s – keep the show on the road – despite all the evidence.
I knew Jacques Delors personal adviser on EMU – we have had endless discussions on money & the political economy – nothing I say, no pile of empirical evidence I present will change his mind on the political economy. Some people are ineducable – my ex-mate is one, Plender and co are others.
Apoloigies for the negative tone – but sometime we need to confront reality.
So, we need to change the world around them.
In the 1952 US Presidential election, a lady told the Democrat candidate Adlai Stevenson. ‘all thinking people support you.’
He replied, ‘Unfortunately. Madam, I need a majority.’
I am a little bit more optimistic.
The answer is simple…. Radio 3.
Now, if only the political/economic issues could be solved so easily.
🙂
Pilgrim Slight Return…your description of Radio 4 made me laugh. After stumbling across this blog, then reading Mosler, Kelton, etc, I have been cured of the household analogy etc., but as a result found it impossible to listen to R4 etc without shouting at the radio. Now, though, I merely make an internal ‘ding’ noise everytime I hear a piece of nonsense uttered as if it was a law of nature. With some programmes it’s like an alarm clock going off in my head – I may need to stop soon.
I have mentioned it before but of course all the Government debt/savings/whatever you want to call it represents as Dr Tim Morgan points out a ‘future call’ on the economy
Given both future ‘resource constraints’ environmental concerns etc will it be possible to meet all of these claims?
[…] By Richard Murphy, Emeritus Professor of Accounting Practice at Sheffield University Management School and a director of Tax Research LLP. Originally published at Funding the Future […]
Excellent article, thanks. 🙂
Government spending results in so called government “debt”. People understand debt from a household perspective and it’s scary. Scary is a big problem.
At present, government spending in excess of tax receipts initiates the sale of gilts/bonds. There is unnecessary, it is a government choice, but it is what happens. The resulting, huge, interest bearing, debt is very scary.
Huge government debt is scary. If you divide it by the population you get a big number, which is scary. Burdening your children with government debt is scary. None of that is true, as you say, but it is, nevertheless, scary.
To avoid debt to the bond markets which, neoliberals falsely say empowers the bond vigilantes, the government could take on the “debt” in its overdraft with the Bank of England. This is much better since an government overdraft with the bank of England is interest free because it owns the bank.
But even then it’s still called debt. And it will, and should, keep on increasing without limit. Even though there is no interest payment, an enormous “debt” is still very scary; people think, from the household perspective, that this has to be paid back sometime (even though that’s not true).
The whole idea of a government overdraft with the Bank of England is nonsense. The government owns the Bank. It cannot owe itself money (could you ever owe yourself one pound?).
The problem is trying to treat the central bank as a commercial bank and apply double entry bookkeeping within the Bank, which can create and destroy money (double entry applies everywhere else). This leads to the nonsensical idea of a government overdraft. Such an overdraft can be cancelled at any time. It means nothing. It has no substantive effect on the economy.
By talking about a government overdraft we are using the false retoric of conventional economics. This helps those wishing to perpetuate myths. We should stop talking about government overdrafts. We should admit the truth, that the central bank can create and destroy money (through tax) without needing to invoke the nonsense of an “overdraft”. Only when we do this will we stop scaring the population with false messages about debt and overdrafts. Then, maybe, we can make more headway against pernicious antisocial neoliberal economic myths.
The sooner the public are in a position to recognise such FT articles are deliberate or mindless “Manufactured Paranoia” (it matters not which) the greater the improvement in British democracy functioning!
Of course, economists, politicians and journalists make a nice little living pushing this paranoia it also gives them status (phoney though it is) that they know how things work. The rich also absolutely love it since it benefits them enormously and sponsor such people as much as they can!
Dealing with this “Manufactured Paranoia” is precisely the situation the Green Party finds itself in currently. Its members want to wear their hearts on their sleeves but many have been put in the invidious position of being greatly confused how they can find the large sums of money they need for their programme by the “Manufactured Paranoia Pushers”. They need help to wise up to what’s being done to them otherwise the party will simply repeat what all the other parties in the UK currently offer “Endless Paranoia” about how the UK’s monetary system works!
Precisely the problem I’ve faced on a small scale. Big voices in the Greens, regardless of Polanski, booming out neoliberally tropes of Positive Money. Mention MMT, and “its old hat”, “it says nothing new” through to “It’s mumbo jumbo and Murphy/Kelton etc are idiots” and one person on Bluesky “Murphy is a transphobe, so are you if you agree with him” followed by so many insulting posts I blocked them. They are a real person in the Greens, and transphobia is used in the party as the new antisemitism. There is a war brewing.
Wow…..
Now you know why I stick to the ideas.
There will be a war, I suspect.
I think the wrong measures of inequality are being referenced far too frequently. The official statistics show almost no change in income inequality and wealth inequality for well over a decade.
It’s generational inequality of opportunity that is the serious problem the UK faces. The law bears down more, the statute book of bans and crimes is the longest ever. Go back to the 1930s and you could build to 80 feet without planning permission and voluntarily support refugees. You could negotiate the value of your own labour. Go back a little further and local authorities could gain planning permission to flood a valley and build a reservoir in the Lake District, but fast forward to 2005 and a private company can’t invest its own money building a new reservoir in the Thames Valley.
This inequality of opportunity is also advanced in lockstep with inequality of power where the bureaucrats and the lawyer class can block what they don’t like, or delay for so long that it’s the same as a ban effectively.
The owners of debt, whether Barclays, Sainsbury,Duke of Westminster et al, are all quite happy to draw their interest each year knowing that the government bonds will always be paid back on term or rolled over. Therefore the owners have no intention in”investing” in actual goods and services provision which incur risk and in which purchasing power/willingness to consume is so drastically reduced with the threat of economic slump or crash looming.
Many thanks for such an illuminating and brilliant article.
It can be despairing at times,as for example one person ,in a “Guardian” article about interest rate reduction,posted BTL that the EEC,’s rates of 2% showed how dire their economy was.
Keep up the good work.
Thanks
Even I like my explanation in that one. I am not sure I have ever put the ideas together in that way before.
Is “Pikender” Plender? Also, I was able to figure out most of the typos, but not this one that starts the last paragraph: “Plender ensw with.”
I ask because I love your work and am most grateful for it.
Edited. Sorry….
Do I understand correctly that the public debt is a consequence of the government spending to keep the economy going because private wealth has stopped investing productively? It appears that private wealth is buying real world assets and government debt extracting rent and savings interest instead? What are the policies we should be pursuing to force private wealth to invest rather than hoard?
You have the direction of causation broadly right, and it is important to be clear about it.
In an economy with rising inequality, large pools of private wealth accumulate faster than they can be spent or invested productively. The wealthy do not increase consumption in line with their income, and much private investment shifts from building productive capacity to buying existing assets – property, land, shares and financial instruments. That activity generates capital gains and rents, but it does not expand the real economy.
When this happens, aggregate demand weakens. To prevent recession and unemployment, the government steps in and spends. The counterpart of that spending is public debt, which is simply the safe financial asset that absorbs the private sector’s excess saving. In that sense, public debt is not the cause of economic dysfunction; it is a symptom of private investment failure and inequality.
At the same time, the state often pays interest on that debt, which means it is rewarding private actors for holding financial claims rather than investing in real activity. This reinforces the problem: wealth grows through rent extraction, the savings glut deepens, and future public debt rises further.
So the policy question is not how to “discipline” government, but how to discipline wealth.
That means:
– taxing wealth, land and unearned income so hoarding is costly
– reducing returns to passive asset holding (including unnecessary interest on government liabilities)
– regulating finance to limit speculative lending
– using public banking and credit guidance to channel investment into productive and green activity
– expanding public investment directly where the private sector will not act
The aim is not to force every pound of wealth into private investment, but to stop an economy in which hoarding is rewarded and productive investment is optional. Until that changes, public debt will continue to rise — not because governments are irresponsible, but because they are compensating for private failure.
All of that makes sense to me. As I’ve said before, I would go further and challenge the idea of rent itself. Buying up all the assets seems to have the goal of renting them back to us and getting even richer. Progressive asset taxation would address this. But it’s always reversible by the next deregulating tax cuts for the rich style government. It strikes me that changing the law so that there is a principle of ‘no payment without purchase’ would embed long term change in a way that people would not want to give up so easily. We could create contracts for incremental transfer of ownership via monthly payments instead of perpetual rent. No current owners are dis-posessed and over time they get back the full value of the asset they are ‘letting’. At the same time, ownership of assets gradually transfers to the people who are paying for them. This should work equally well for homes, factories, offices, farmland… Every individual becomes middle class and all businesses accumulate capital. Obviously I’m not an economist so I’d be curious to know what the objections would be to such a system.
Yes and yes. Clear logic and lucid, uncompromising rhetoric. Not to mention the ironic beauty of public spirit rescuing all from the failure of wealth holders to risk actually investing. Animal spirits are ours!
I think this one is significant for my own framing of this issue. I changed my own thinking with it.
The wealthy do not increase consumption in line with their income, and much private investment shifts from building productive capacity to buying existing assets – property, land, shares and financial instruments. That activity generates capital gains and rents, but it does not expand the real economy.
but what if they spend it setting up new businesses, building houses…?
If the wealthy were consistently investing in new businesses, building additional housing, and expanding productive capacity, this would not be the problem it is. That kind of spending increases output, employment and future supply, and it reduces the need for government to step in.
The issue is empirical, not theoretical. Much private wealth does not flow into new productive investment. It is disproportionately directed towards existing assets, mergers, financial engineering, property speculation and land. Even where “new businesses” are created, many are vehicles for asset extraction rather than capacity building.
Policy should therefore be designed around observed behaviour, not idealised assumptions. When productive investment happens, it should be encouraged. When wealth is hoarded or used to extract rents, it should be taxed and regulated.
There’s an awful lot of evasion going on with critical issues in the British establishment. Just for fun because I know Google AI always makes excuses for its contradictory answers on complex issues I asked the following question:-
“Does the Bank of England agree with Fiscal Credibility Rules?”
Back came the following answers:-
“The Bank of England (BoE) does not explicitly agree or disagree with the government’s specific “Fiscal Credibility Rules” as it maintains operational independence from political decision-making.”
“The Bank’s Governor has emphasized the importance of a predictable and credible government fiscal framework, as market confidence in the government’s ability to manage its finances helps reduce borrowing costs and volatility. In this sense, the Bank views fiscal rules as a tool for the government to signal its commitment to sustainable public finances, which aids the Bank’s job of managing inflation.”