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Source: (consider it)
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Thread: Stunning success of Tory economic policy
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Dafyd
Shipmate
# 5549
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Posted
There have been many criticisms of Tory economic policy. People have said that the costs of the cuts haven't been worth the benefits. People have said that the cuts are actually damaging economic recovery. But Tory economic policy has at least succeeded on its own terms: the UK credit rating hasn't been downgraded.
What's that? Oh.
No doubt some people will point out that with hindsight some of Labour's economic decisions were wrong. But can anyone dispute that when Labour was right the Tories were wrong, and when Labour went wrong the Tories were even more wrong.
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South Coast Kevin
Shipmate
# 16130
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Posted
Except the report from Moody's seems to be saying they've reduced the UK's credit rating because the Government isn't getting the deficit under control quickly enough. Here's an extract from the report (italics mine):
quote:
WHAT COULD MOVE THE RATING UP/DOWN
As reflected by the stable rating outlook, Moody's does not anticipate any movement in the rating over the next 12-18 months. However, downward pressure on the rating could arise if government policies were unable to stabilise and begin to ease the UK's debt burden during the multi-year fiscal consolidation programme. Moody's could also downgrade the UK's government debt rating further in the event of an additional material deterioration in the country's economic prospects or reduced political commitment to fiscal consolidation.
Conversely, Moody's would consider changing the outlook on the UK's rating to positive, and ultimately upgrading the rating back to Aaa, in the event of much more rapid economic growth and debt-to-GDP reduction than Moody's is currently anticipating.
Link to the full report
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deano
princess
# 12063
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Posted
Some cheese to go with your whine?
It will be better by the time the next election comes around. Then we will present the public with the choice of sticking with us, or handing control back to those fools who broke the economy in the first place. Plenty of sound bites in that little lot.
We will also point out that it has taken so long to fix the economy because that's a reflection on how bad Labour broke it.
And do you REALLY trust The Boy Millipede with the economy?
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Cod
Shipmate
# 2643
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Posted
I expect Labour's actual policy will be more or less the same as the Coalition's. Labour will just pretend to be doing it all differently.
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Ricardus
Shipmate
# 8757
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Posted
quote:
Originally posted by South Coast Kevin:
Except the report from Moody's seems to be saying they've reduced the UK's credit rating because the Government isn't getting the deficit under control quickly enough.
Which kind of repeats Dafyd's point: Tory economic policy has failed on its own terms. The whole thing was predicated on 'if we do this, it'll cut the deficit'.
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Then the dog ran before, and coming as if he had brought the news, shewed his joy by his fawning and wagging his tail. -- Tobit 11:9 (Douai-Rheims)
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Anglican't
Shipmate
# 15292
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Posted
quote:
Originally posted by Ricardus:
Which kind of repeats Dafyd's point: Tory economic policy has failed on its own terms. The whole thing was predicated on 'if we do this, it'll cut the deficit'.
The deficit is being cut, but not being cut fast enough for the rating agency's liking. Given that the government will get a lot of opprobrium anyway, I always thought this was a good opportunity to really cut spending (I understand that total government spending isn't being cut at all).
[ 24. February 2013, 08:31: Message edited by: Anglican't ]
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Schroedinger's cat
Ship's cool cat
# 64
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Posted
Whatever the reason behind the downgrade - which, apparently, will not make a lot of difference - the credit rating was THE indicator that George Osborne highlighted for his policies.
On his own terms, he has failed.
The problem is, as always, that there are no alternatives. I wouldn't trust any of the Cabinet or Shadow Cabinet with running the country.
Of course, all they will really do is blame the previous administration. If they have not managed to settle things in the last 3 years, they are not doing a good enough job. If it takes so long to stabalise an economy, then the job should be taken out of the hands of the politicians.
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Trisagion
Shipmate
# 5235
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Posted
The first graph here explains why Moody's downgraded us. Is Ed Balls strategy likely to improve or worsen the position, I wonder?
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quetzalcoatl
Shipmate
# 16740
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Posted
Some people keep saying that the deficit has been reduced, but surely the overall debt has increased? I notice various people keep interchanging 'deficit' and 'debt', which is rather naughty, even politicians seem to do it.
Isn't it correct that the AAA rating has been dropped, because the debt is going up?
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South Coast Kevin
Shipmate
# 16130
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Posted
Agreed that Moody's are saying the Government's policy has failed on its own terms. But the implication of this is that the Government should do more to reduce the deficit, not less (as Labour would do, it seems).
quote:
Originally posted by quetzalcoatl:
Some people keep saying that the deficit has been reduced, but surely the overall debt has increased? I notice various people keep interchanging 'deficit' and 'debt', which is rather naughty, even politicians seem to do it.
Isn't it correct that the AAA rating has been dropped, because the debt is going up?
The overall debt is still going up, of course. There was never any chance of us having no deficit at all by now. But, yes, there's an awful lot of confusion (being charitable!) between 'deficit' and 'debt', including an alarming amount from politicians and financial journalists who really should know better.
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rolyn
Shipmate
# 16840
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Posted
I'm no Tory lover , and understand economics even less. I do have a memory though and , in the words of max bigraves, 'I wanna tell you a storry'
In the 70s under a Tory, and then Labour government, Britain was in a shambles with strike after strike.
Along comes thatcher who forces a very bitter pill down our throats which eventually end strikes and improves are general economic health. Then , for one reason an another she gets us into a damaging recession .
Tories administer some more harsh medicine which is a long time working , (green shoots). Eventually it does work, by which time everyone's fed up with them and elect Labour, who have been in opposition for 18 yrs.
As a result Blair, in 97, inherits the best set of economic figures of any newly elected Prime Minister in history . Then, after everything has been rosy for 10 yrs, a second worldwide recession occurs under his watch.
So along come the Tories with their bitter medicine again........ Get the pattern ?
Waiting might not be a popular concept in this, the age of instant gratification yet waiting, it seems, is all that can be done.
I accept this history lesson is of no use nor interest to folks currently losing jobs and houses.
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Change is the only certainty of existence
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quetzalcoatl
Shipmate
# 16740
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Posted
Yet the economy was growing at a moderate rate when this government took over. Yes, I can see the need for some austerity measures, but what puzzles me is that by slamming on the brakes, you are going to reduce spending by Joe Bloggs, (the man in the street), hence tax receipts will drop, hence government borrowing must increase.
I expect that it's a delicate balancing act to make some cuts, while still allowing the economy to grow at a moderate rate, in order to provide tax receipts.
Of course, I have no idea if Labour could do this.
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Sighthound
Shipmate
# 15185
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Posted
I have no faith whatever in any of the current politicians.
Having read Correlli Barnett's analysis of Britain's performance pre-war, during WW2 and post war, it seems to me that nothing much has changed. We bumble along as ever, with no real vision of where we want to be or how to get there. And we are still burdened by the obsolete notion that we are a 'Great Power' even though we haven't been since 1918. Time to get real.
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alienfromzog
Ship's Alien
# 5327
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Posted
The problem with the public debate is that much of what is said by people who either know better or really should, is that much of it is misleading. Top of that list is comparing a national economy to a household budget. In 'Normal' economic times public spending makes up ~40% of the economy. Therefore changes to this have wider effects in a way that cutting one's household spending never could.
A national surplus/deficit is simply tax-take minus expenditure. When faced with a deficit, cutting spending and increasing taxes is the obvious solution. But there is a big problem with this: doing so can shrink the economy which will reduce the tax-take and also increase expenditure and hence make the deficit bigger. This has happened. (Osborne is claiming a smaller deficit by including one offs such as the 4G licence receipts and commission made by the treasury on quantitative easing). So when you spend more does the economy grow and tax increase? Well yes. Up to a point. There are two limits on this: the first is what are called 'multipliers' and the second is interest rates.
What a multiplier basically means is the overall broader effects of a particular spending... a positive multiplier means for every £ of government spending, the overall effect on the wider economy is larger. And vice versa where the tax-hike or increased borrowing will mean that certain spending damages the economy. Not all spending is alike and some is clearly better than others.
What Krugman et al. have been arguing is that in a financial crisis the multipliers increase to such an extent that austerity will always be self-defeating. Intriguingly, last year the IMF (one of the most moneterist organisations in the world) said that their data confirmed this.
So the answer is to invest in employment and infrastructure and not worry about the deficit YET. As by doing so most of it will take care of itself. This kind of bold policy will be possible but whilst interest rates are so low (real terms negative) it will be easy. By adopted this approach in '09 Alistair Darling was able to get a deficit at the end of the year over £20bn less than predicted... And all the Tories called his deliberately cautious prediction wildly over-optimistic. How does that compare with Osborne's prediction record?
AFZ
P.s. when will we get beyond the myth of Thatcher's economic competence? Two big recessions, on-going battles with inflation. Higher borrowing than the supposedly reckless Brown. And all with a peak of North Sea oil revenues and a massive boost from privatisation revenues: right or wrong, you can only sell them once.
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Schroedinger's cat
Ship's cool cat
# 64
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Posted
quote:
Originally posted by Trisagion:
Is Ed Balls strategy likely to improve or worsen the position, I wonder?
But actually, that is not the point. Ed Balls has not put his entire policy on the line of keeping the AAA rating.
If Labour had stayed in, the debt would probably have risen a lot more, but the economic recovery might have been better long term. We may have lost our credit rating anyway - and possibly sooner - but we might also have pulled out of the recession sooner. That is what some analysts I have seen over the last year or so have said.
Of course, we don't know. We have one fiscal policy, with one primary indicator of its success or failure. On that basis, this government has failed.
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Blog
Music for your enjoyment
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quetzalcoatl
Shipmate
# 16740
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Posted
And with current policy, you have the bizarre combination of austerity plus rising debt. The austerity is meant to reduce the debt, but it seems to be damping down spending, so that tax receipts are reduced, and the govt has to borrow more. I don't think this is meant to happen!
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Dafyd
Shipmate
# 5549
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Posted
quote:
Originally posted by deano:
Then we will present the public with the choice of sticking with us, or handing control back to those fools who broke the economy in the first place.
So the question as far as the Tories are concerned isn't whether Osbourne's policy is working, but whether the Tories can dupe the electorate into voting for them again?
The economy got into a recession because, there was too much spending on the strength of an economic bubble, not enough money being raised in tax, and most importantly too little regulation on the financial services sector. The Tories pledged to match Labour spending, made no suggestion that the economic bubble was a bubble, made no suggestion that tax intake should be raised, and no suggestion that financial regulation was too lax. Tory criticism of Labour policy is based entirely upon hindsight.
On the other hand, the economy was recovering under Brown and Darling at the time of the election. Darling said that the recession would return if Tory policies were followed, and it has. Darling and now Balls have made a successful prediction. Maybe the economy would have gone back into recession anyway. But still Labour have made successful predictions about the economy, and the Tories never have.
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we remain, thanks to original sin, much in love with talking about, rather than with, one another. Rowan Williams
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quetzalcoatl
Shipmate
# 16740
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Posted
Sometimes, the Tories seem to deal off the bottom of the pack, since on the one hand, they argue that the current crash is world-wide, and therefore, their own efforts are also dependent on the world economy, AND, that Brown and Balls caused the British crash. Well, I suppose it is a bit more sophisticated than that, but I seem to remember the Tories arguing, pre-crash, that financial regulation was not light enough! Hang on, there is a contradiction here.
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leo
Shipmate
# 1458
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Posted
quote:
Originally posted by deano:
We will also point out that it has taken so long to fix the economy because that's a reflection on how bad Labour broke it.
Not Labour - it all started with the deregulation of the financial markets under the Tories, when Lawson was chancellor of the exchequer, in 1986. That led to the sub prime mortgage crisis, credit crunch etc.
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ken
Ship's Roundhead
# 2460
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Posted
quote:
Originally posted by Sighthound:
And we are still burdened by the obsolete notion that we are a 'Great Power' even though we haven't been since 1918. Time to get real.
1918? British Empire was the richest state in the world in 1918, with the largest population and the greatest land area. 1948 might be a more accurate date.
Tho if there is more than one great power today, Britain is still one of them.
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Ken
L’amor che move il sole e l’altre stelle.
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quetzalcoatl
Shipmate
# 16740
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Posted
quote:
Originally posted by leo:
quote:
Originally posted by deano:
We will also point out that it has taken so long to fix the economy because that's a reflection on how bad Labour broke it.
Not Labour - it all started with the deregulation of the financial markets under the Tories, when Lawson was chancellor of the exchequer, in 1986. That led to the sub prime mortgage crisis, credit crunch etc.
Yes, also Clinton. There is an amazing photo of him with some bankers, signing away most bank regulations, hey ho, leading to a new land of freedom and prosperity.
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I can't talk to you today; I talked to two people yesterday.
Posts: 9878 | From: UK | Registered: Oct 2011
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Ricardus
Shipmate
# 8757
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Posted
quote:
Originally posted by South Coast Kevin:
Agreed that Moody's are saying the Government's policy has failed on its own terms. But the implication of this is that the Government should do more to reduce the deficit, not less (as Labour would do, it seems).
But reducing the deficit =/= cuts.
Tory policy, AIUI, was that economic growth would cause increased tax takings, which would combine with the cuts to reduce the deficit. In reality the growth hasn't happened and their strategy has failed.
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Then the dog ran before, and coming as if he had brought the news, shewed his joy by his fawning and wagging his tail. -- Tobit 11:9 (Douai-Rheims)
Posts: 7247 | From: Liverpool, UK | Registered: Nov 2004
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quetzalcoatl
Shipmate
# 16740
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Posted
Or you could also say that they are reducing the deficit, but increasing the debt.
I think there is some fancy footwork going on here, which tries to cloud over the difference.
Or are they just confused?
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Sioni Sais
Shipmate
# 5713
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Posted
You could accurately describe Tory economic policy as a stunning success if you wanted to say that growth, and hence the economy, has been stunned.
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Cod
Shipmate
# 2643
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Posted
quote:
Originally posted by Ricardus:
Which kind of repeats Dafyd's point: Tory economic policy has failed on its own terms. The whole thing was predicated on 'if we do this, it'll cut the deficit'.
I think their rhetoric has failed on its own terms.
It seems to me that Tory economic policy is premised on making lots of noise about cuts - while actually making as few cuts as is prudent and hoping the economy recovers.
Labour's policy is is to call the Tories' bluff and act as if they are making savage cuts, knowing that whatever is actually going on, that should translate into sufficient votes for them to win the next election.
LibDem policy of course is to hold Eastleigh (which they will probably manage) and take it from there.
BTW, Vince Cable is right when he says that losing the AAA rating isn't that important. It doesn't follow necessarily that the Gvt's borrowing costs will rise. If everyone else's ratings are heading south, that is.
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Posts: 4229 | From: New Zealand | Registered: Apr 2002
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Marvin the Martian
Interplanetary
# 4360
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Posted
quote:
Originally posted by Dafyd:
So the question as far as the Tories are concerned isn't whether Osbourne's policy is working, but whether the Tories can dupe the electorate into voting for them again?
Isn't that every political party's tactic?
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Hail Gallaxhar
Posts: 30100 | From: Adrift on a sea of surreality | Registered: Apr 2003
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Sighthound
Shipmate
# 15185
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Posted
quote:
Originally posted by ken:
Tho if there is more than one great power today, Britain is still one of them.
I respectfully disagree. Real power, as opposed to illusory power, is based on economic strength. The UK is anything but an economic powerhouse, we are in the deepest do-do we have been in for a very long time, with no apparent route out of the mess.
Part of our problem, for a very long time, has been 'imperial overstretch'. The misguided belief we are still big and powerful enough to do the things we did back in the day. We have still not completely shed this attitude. Meanwhile, Germany, which has no such pretensions, quietly gets on with making things that people need and earning its way in the world.
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Marvin the Martian
Interplanetary
# 4360
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Posted
quote:
Originally posted by Sighthound:
The UK is anything but an economic powerhouse, we are in the deepest do-do we have been in for a very long time, with no apparent route out of the mess.
And yet we're the sixth biggest economy in the entire world. Ken is right - if there's more than one great power in the world today, it's hard to argue that Britain isn't one of them.
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Hail Gallaxhar
Posts: 30100 | From: Adrift on a sea of surreality | Registered: Apr 2003
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Adeodatus
Shipmate
# 4992
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Posted
quote:
Originally posted by Marvin the Martian:
And yet we're the sixth biggest economy in the entire world.
Which is fine, unless you're spending money like you're the fifth biggest. And that seems to be the problem.
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Chas of the Dicker
Apprentice
# 12769
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Posted
Do you remember in 'the Hitchhikers Guide to the Galaxy' that the point of the President was to distract attention form where the power was actually being exercised. It is the bankers who have run the economy, and run it into our current mess. Endless pontificating and slandering of the poor will not obscure this.
Posts: 35 | From: Hastings, East Sussex, UK | Registered: Jun 2007
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Ricardus
Shipmate
# 8757
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Posted
quote:
Originally posted by Cod:
BTW, Vince Cable is right when he says that losing the AAA rating isn't that important. It doesn't follow necessarily that the Gvt's borrowing costs will rise. If everyone else's ratings are heading south, that is.
True. I don't get the impression America suffered from being downgraded.
Also we mustn't forget that this is the same Moody's who "rated AIG and Lehman Brothers as AAA, AA minutes before they were collapsing."
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Then the dog ran before, and coming as if he had brought the news, shewed his joy by his fawning and wagging his tail. -- Tobit 11:9 (Douai-Rheims)
Posts: 7247 | From: Liverpool, UK | Registered: Nov 2004
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Sioni Sais
Shipmate
# 5713
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Posted
quote:
Originally posted by Sighthound:
quote:
Originally posted by ken:
Tho if there is more than one great power today, Britain is still one of them.
I respectfully disagree. Real power, as opposed to illusory power, is based on economic strength. The UK is anything but an economic powerhouse, we are in the deepest do-do we have been in for a very long time, with no apparent route out of the mess.
Part of our problem, for a very long time, has been 'imperial overstretch'. The misguided belief we are still big and powerful enough to do the things we did back in the day. We have still not completely shed this attitude. Meanwhile, Germany, which has no such pretensions, quietly gets on with making things that people need and earning its way in the world.
One cannot compare Germany to Britain as their economy is still biased towards manufacturing while ours is primarily that of moving money around. If you build a car, you've got a car, but if you make your living by taking a percentage of every trade, then if the financial trades drop off, you have nothing to show for it. Not even a a car worth half of what it was a few years ago.
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Posts: 24276 | From: Newport, Wales | Registered: Apr 2004
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Yam-pk
Shipmate
# 12791
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Posted
[.N.B. Handy that a LibDem sex scandal has handily come along to distract people from the failure of Osborne's policies...]
Posts: 472 | From: The Grim North | Registered: Jul 2007
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The Midge
Shipmate
# 2398
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Posted
quote:
Originally posted by Chas of the Dicker:
Do you remember in 'the Hitchhikers Guide to the Galaxy' that the point of the President was to distract attention form where the power was actually being exercised. It is the bankers who have run the economy, and run it into our current mess. Endless pontificating and slandering of the poor will not obscure this.
Whoops logging in on a borrowed iPad to say. DA was wrong about the shoe shop event horizon though. Though the economy.may be taken over by on line gambling sites instead.
[ 25. February 2013, 13:02: Message edited by: The Midge ]
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Sergius-Melli
Shipmate
# 17462
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Posted
Just to say:
The debt will not go down until the deficit (Income-Expenditure) is eliminated. Since the debt goes up based on the size of the defecit (which is going down) and the interest payments on what is already there, it will not be until the Treasury is seeing a surplus again that the debt can realistically be paid down (ultimately off).
Posts: 722 | From: Sneaking across Welsh hill and dale with a thurible in hand | Registered: Dec 2012
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Albertus
Shipmate
# 13356
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Posted
quote:
Originally posted by Sioni Sais:
quote:
Originally posted by Sighthound:
quote:
Originally posted by ken:
Tho if there is more than one great power today, Britain is still one of them.
I respectfully disagree. Real power, as opposed to illusory power, is based on economic strength. The UK is anything but an economic powerhouse, we are in the deepest do-do we have been in for a very long time, with no apparent route out of the mess.
Part of our problem, for a very long time, has been 'imperial overstretch'. The misguided belief we are still big and powerful enough to do the things we did back in the day. We have still not completely shed this attitude. Meanwhile, Germany, which has no such pretensions, quietly gets on with making things that people need and earning its way in the world.
One cannot compare Germany to Britain as their economy is still biased towards manufacturing while ours is primarily that of moving money around. If you build a car, you've got a car, but if you make your living by taking a percentage of every trade, then if the financial trades drop off, you have nothing to show for it. Not even a a car worth half of what it was a few years ago.
And that is why we are a Great Power (TM) whose nuclear weapons and Security Council veto do not prevent us from grovelling in terror before the whims of a lot of coked-up over-testosteroned perpetual adolescents in the City, and they are merely a prosperous and civilised country with a sustainable economy.
Posts: 6498 | From: Y Sowth | Registered: Jan 2008
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molopata
The Ship's jack
# 9933
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Posted
As long as you have some kind of economic growth (which has of course also been annihilated of recent) you can in fact actually sustainably run a deficit, as long as it does not exceed you GNP increase.
If your debt is denoted in your own currency (which most British debt is), then you can deflate it with inflation. Maybe that's why the BofE is no longer quite as keen as they were on the 2% inflation target.
Posts: 1718 | From: the abode of my w@ndering mind | Registered: Aug 2005
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Schroedinger's cat
Ship's cool cat
# 64
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Posted
quote:
Originally posted by quetzalcoatl:
Or you could also say that they are reducing the deficit, but increasing the debt.
I think there is some fancy footwork going on here, which tries to cloud over the difference.
Or are they just confused?
What you mean, of course, is that the Tories are pulling off some cunning stunts.
Or something like that.
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Blog
Music for your enjoyment
Lord may all my hard times be healing times
take out this broken heart and renew my mind.
Posts: 18859 | From: At the bottom of a deep dark well. | Registered: May 2001
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ken
Ship's Roundhead
# 2460
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Posted
quote:
Originally posted by Cod:
LibDem policy of course is to hold Eastleigh (which they will probably manage) ...
Why do you think that? Are the remnants of the old "Focus Teams" putting some sort of date-rape drug in the water supply in Hampshire?
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Ken
L’amor che move il sole e l’altre stelle.
Posts: 39579 | From: London | Registered: Mar 2002
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Cod
Shipmate
# 2643
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Posted
quote:
Originally posted by ken:
quote:
Originally posted by Cod:
LibDem policy of course is to hold Eastleigh (which they will probably manage) ...
Why do you think that? Are the remnants of the old "Focus Teams" putting some sort of date-rape drug in the water supply in Hampshire?
Because even the Torygraph is commenting that the polls predict one.
That was an unpleasant little witticism, by the way.
Posts: 4229 | From: New Zealand | Registered: Apr 2002
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Cod
Shipmate
# 2643
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Posted
quote:
Originally posted by Sioni Sais:
One cannot compare Germany to Britain as their economy is still biased towards manufacturing while ours is primarily that of moving money around. If you build a car, you've got a car, but if you make your living by taking a percentage of every trade, then if the financial trades drop off, you have nothing to show for it. Not even a a car worth half of what it was a few years ago.
Britain remains one of the largest manufacturing economies in the world. The Germans are just even larger.
Britain still builds cars, by the way. Nice, shiny, exceptionally expensive cars that are a milion miles removed from the unreliable rustboxes churned out in the days when Britain made "real" things.
Your analogy isn't a very good one anyway - if you build x cars and can't sell them, you're in trouble. They can't even be used as paperweights.
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"I fart in your general direction."
M Barnier
Posts: 4229 | From: New Zealand | Registered: Apr 2002
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Sioni Sais
Shipmate
# 5713
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Posted
quote:
Originally posted by Cod:
Your analogy isn't a very good one anyway - if you build x cars and can't sell them, you're in trouble. They can't even be used as paperweights.
OK, it isn't a brilliant analogy, few are, but my point is that once a car has been made it is there and can be used. A financial trade that didn't happen is worth nothing, and too much of Britain's economic capability is directed towards less concrete wealth-creating activities, which depend on business confidence to a greater extent than does manufacturing.
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"He isn't Doctor Who, he's The Doctor"
(Paul Sinha, BBC)
Posts: 24276 | From: Newport, Wales | Registered: Apr 2004
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alienfromzog
Ship's Alien
# 5327
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Posted
Britain is the 9th largest manufacturing country in the most recent list I could find.
We have a thriving car industry - it's just that virtually none of it is British owned. We make Nissans and Hondas and Fords and (GM) Vauxhalls... And the Nissan factory in Sunderland (I think??) is particularly renowned for it's quality and efficiency.
Similarly in terms of aerospace we are basically only second to the US... big parts of Airbus are in the UK and BAe and Rolls Royce are making engines for aircraft in Derby and Bristol. Similarly we are a world leader in pharmaceuticals.
Of course, that doesn't change the fact that we have an unbalanced economy towards financial services.
Oh and nation states don't pay-off their debts because generally speaking it's not the best idea to do so. With increasing GDP and inflation, it's generally wiser not to.
The history of England's national debt is particular interesting and emblematic of the value of (sensible) public-sector borrowing.
In the 1690s the Royal Naval was defeated by the French. The French navy was then free to hassle and capture British merchant vessels. The national wealth depended entirely on trade with the rest of the world - Africa, India etc.
What was clearly needed was a new navy. But there was no money to pay for the ships. In order to build a new navy the Bank of England was formed (1694). A guaranteed return of 6% was on offer to any one who invested. The King and Queen were the first depositors and the wealthy of the land took up such a good investment. The money raised was used to build a navy, and the French were pushed back. The massive increase in trade that resulted brought in much wealth and taxes which enabled the government to easily pay the return.
And Britain became the wealthiest country on earth. Now you could make a moral argument against such a war-warmongering and imperial policy but economically it was a massive, massive success. Instead of starving, Britain became hugely wealthy. Even since then, Britain has a had a national debt.
If you look at the history of it, the current levels of debt (~60-70% of GDP) and not notably high at all. The peak was in the early 1800s after the Napoleonic wars at over 250% of GDP. After world war II it stood at over 200%.
One final myth to challenge. It is simply not really true that debts ran up today have to be paid of by the next generation. Or rather, the effect of that is often negligible. When they're not negligible, it may still be a price worth paying. If we take 40 years as a generation; net debt for the UK was 43.13% of GDP at the end of the financial year 82-83. Which equates to £132Bn. Or to put it another way, the entire net debt in 1983 was less than this year's deficit despite the fact that it was 2/3 of the size of the current national debt compared to the GDP. Or to put it another, another way. Total debt in '83 was 8% of current GDP. The debts we run up today will be significantly less impressive in 40 years' time. The price you pay for such debts is the interest payments in the meantime; Balance that against the effects of a stalled economy, a lost generation of young people who can't find employment and you start to get a better picture of where we are.
The problem of debt is not paying it off - inflation and increases in GDP take care of that - it's servicing the debt in the meantime. And hence excessive debts become problematic. The tipping point for collapse is when the interest payments become so large that in themselves that make it impossible to balance the budget and hence the debt (relative to GDP) keeps growing. This why a few astute people will talk about interest payments as a proportion of GDP. UK interest payments are currently just under 3% of GDP (Just over half what they were in 1983 btw...)
Running a deficit is not necessary a bad idea; deficits can be good policy if they do either of the following;
1) Are part of the automatic stabilisers; i.e. in the lower parts of the economic cycle you borrow and in the higher parts you have a surplus and hence over the course of the business cycle you have a balanced budget.
2) You borrow to invest - i.e. capital spending rather than routine expenditure.
The problem for Britain at the moment is because Osborne decided to cut everything (including valuable things) and because this has shrunk the economy the deficit is increasing and it's all going on expenditure and not investment.
In the Maastrict treaty there were some rules for sound economic management that national deficits should not exceed 3% GDP and debt 40% of GDP. Essentially this was where Britain was at until 2008.
To then have the explosion in the national deficit because of a once-in-two-generation international crisis is neither surprising nor in itself problematic. But the debt-fetishness of the right-wingers introduced austerity on the basis that Britain is Greece... for which there is NO evidence... and fails in its own terms because it shrinks the economy and makes the deficit worse. Never mind the devastating consequences of the policy itself.
As Stiglitz wrote in 2010 (another Nobel Prize winner) Britain's policy should not be trying to appease the markets as this is like arguing with a crazy person but to simply prioritise growth and let the debt take care of itself. The size of the deficit is not in itself a problem. The size of the debt is not in itself a problem. But self-defeating austerity makes everyone much worse off overall, and moreover - doesn't actually fix the problem it's supposed to!
Anyway, just my thoughts....
AFZ
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Everyone is entitled to his own opinion, but not his own facts.
[Sen. D.P.Moynihan]
An Alien's View of Earth - my blog (or vanity exercise...)
Posts: 2150 | From: Zog, obviously! Straight past Alpha Centauri, 2nd planet on the left... | Registered: Dec 2003
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Arethosemyfeet
Shipmate
# 17047
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Posted
quote:
Originally posted by Sergius-Melli:
Just to say:
The debt will not go down until the deficit (Income-Expenditure) is eliminated. Since the debt goes up based on the size of the defecit (which is going down) and the interest payments on what is already there, it will not be until the Treasury is seeing a surplus again that the debt can realistically be paid down (ultimately off).
I'm really struggling to find evidence that the deficit is decreasing. All the figures I can find seem to suggest that it is, in fact, increasing, as in, was more in 2012 than it was in 2011. Is this one of those "depends which year you take as a baseline" kind of deals?
Posts: 2933 | From: Hebrides | Registered: Apr 2012
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Ricardus
Shipmate
# 8757
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Posted
The figures in the table at the bottom of this article show the deficit is falling (click 'financial year' to see year-by-year).
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Then the dog ran before, and coming as if he had brought the news, shewed his joy by his fawning and wagging his tail. -- Tobit 11:9 (Douai-Rheims)
Posts: 7247 | From: Liverpool, UK | Registered: Nov 2004
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alienfromzog
Ship's Alien
# 5327
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Posted
quote:
Originally posted by Ricardus:
The figures in the table at the bottom of this article show the deficit is falling (click 'financial year' to see year-by-year).
As I said above, this is only true because of an accounting trick: See here...
AFZ
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Everyone is entitled to his own opinion, but not his own facts.
[Sen. D.P.Moynihan]
An Alien's View of Earth - my blog (or vanity exercise...)
Posts: 2150 | From: Zog, obviously! Straight past Alpha Centauri, 2nd planet on the left... | Registered: Dec 2003
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Stowaway
Ship's scavenger
# 139
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Posted
The 4G sale failed to make the money he banked on too. So the figures are wrong even if you accept that he could include the sale.
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Warning: Mid-life crisis in progress
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