Once again on Labour’s ‘out of control’ spending

[ttosca]

Some things are worth repeating because they are that important and some things should be repeated because they were not heard, or listened to, the first time.

Brown DarlingSome things fall under both categories.

It is testament to a failure in communication on the left that in the years immediately after the financial crisis the consensus was allowed to form that under Labour spending got out of control. The hangover from this communication failure persists in the public?s continued reluctance to trust Labour on the economy.

It is seemingly forgotten now, but the Tories promised to match Labour?s spending plans right up until 2008; in the aftermath of the 2010 election, however, a drawn-out Labour leadership contest allowed David Cameron to define the post-crisis landscape as the hangover of a spendthrift Labour Party.

The country was in a mess and the only ones who could clear that mess up were the Conservatives, who would reign in the excesses of the Blair and Brown years and bring some temperance to proceedings.

It is worth repeating, then, something pointed out by Martin Wolf in today?s Financial Times (£): in the years leading up to the 2007/08 financial crisis ? the supposedly out of control, spendthrift years ? UK net public debt was close to its lowest ratio to GDP in the past 300 years.

As the graph below shows, government debt as a percentage of GDP was well below average under Labour and rose, predictably, as a response to the collapse in GDP ? as it would. And why does this matter? Because the relevance of the amount of money spent by government is related to how big a proportion of GDP it is, not how much is spent in total.

While debt is now higher than it has been for a considerable period of time, the blatant dishonesty in the claim that spending was out of control under Labour has more to do with finding a rationale for stripping back the state than it does with dealing with any perceived ?debt crisis?.

www.leftfootforward.org/2013/04/once-again-on-labours-out-of-control-spending/

[niceguy2]

Labour blame Tories, Tories blame Labour. Lib Dems blame both. SNP blame Westminster. Al Queda blame infidels.

Nothing really new. Par for the course. How we got to where we are is almost academic nowadays.

What I'd like your view on is:

1. What is our current total debt in pounds? Not as a percentage, not the deficit. The actual debt itself. Doesn't have to be exact. A ballpark is sufficient.
   
   
2. Are we paying ANY of this debt back? If the answer is no, when do you think would be a good time to pay some of this debt back? Now, ten years, twenty, never?

[CogitoErgoSometimes]

The level of the debt in the run up to the crisis wasn't the problem. It was the over-heavy current public spending. Fine as long as the banks kept chunking out the money but as soon as the wheels came off and the tax revenues fell away, the public spending was exposed as being unsustainable.

[MrJudgeyPants]

All growth from sometime around 2002/3 onwards was built on sand. I read an interesting article the other day, the gist of which was that the dotcom bust should have caused a small recession sometime after the millennium. To prevent this small recession central banks around the world reduced interest rates in an effort to stave off the inevitable. This in turn lead to a surplus of cheap credit (and consequent malinvestment) which, amongst other things, led to the unsustainable housing bubble, an unsustainable boom in consumer spending and also allowed governments to borrow money at historically low rates. The rest is history. It may be that this theory is wrong but it seems, at least to me, to be quite a convincing economic history of the last decade.

The obvious conclusion to draw from this is twofold. Firstly that turning the economic clock back to 2007/8 and the start of the current recession won?t fix the problem. The whole economy was already skewed towards unsustainability by then. By extension this means that the government?s recovery strategy (and that advocated by all major political parties in the UK, across the EU and the US) is wrong and that any real recovery will see yet more ?growth? wiped off our collective GDP?s. The second conclusion is that the currently low interest rates will be continuing to create malinvestment within the wider economy. Needless to say, the remedy for that is politically unpalatable as raising the interest rates in a recession is both economic and political suicide.

Now it wouldn?t be a JudgeyPants rant without blaming ?big government? for all our woes but, in this instance, the state ? in the form of the big central banks ? is entirely responsible for causing this problem. To that end, this recession was the fault of our governments, Labour included.

[niceguy2]

You could see the bust coming a mile off and the inevitable recession. The only question was when?

[flatpackhamster]

Everyone apart from mentalists on the far left knows Labour spent like a crack addict, and feeble attempts to rewrite their disgraceful past won't change that.

CogitoErgoSometimes

The level of the debt in the run up to the crisis wasn't the problem.

I have seen that argument wafted around too, and I disagree with it. The UK was spending £27.Bn a year of our tax revenues merely paying the interest on the national debt in 2007. That was 80% of the defence budget.

I consider that a serious problem. Paying off the national debt makes us all richer and happier in the long term.

[ttosca]

flatpack-

I have seen that argument wafted around too, and I disagree with it. The UK was spending £27.Bn a year of our tax revenues merely paying the interest on the national debt in 2007. That was 80% of the defence budget.

Here is the UK historical chart for interest/GDP ratio:

www.ukpublicspending.co.uk/spending_chart_1900_2015UKp_12c1li011mcn_90t

In 2007, it was at an almost 90 year lowpoint.

I consider that a serious problem. Paying off the national debt makes us all richer and happier in the long term.

What you mean to say is that you prefer a smaller state and lower public spending, whatever the interest, whatever the cost.

[Xenia]

Person asking what is the figure of the national debt it is on this link but changes every second so I cannot cut and paste

www.debtbombshell.com/

[niceguy2]

But looking at the ratio is misleading. The actual debt is shown on this graph using the site you used above:

www.ukpublicspending.co.uk/downchart_ukgs.php?chart=G0-total&year=1900_2011&units=b&state=UK

[flatpackhamster]

ttosca

Here is the UK historical chart for interest/GDP ratio:

^www.ukpublicspending.co.uk/spending_chart_1900_2015UKp_12c1li011mcn_90t^

In 2007, it was at an almost 90 year lowpoint.

And what does that chart mean?

Well, what it means is that it was cheaper for us to sell debt than at any other time.

It isn't an argument for raising the debt. It's an argument for cutting it, or at the very least renegotiating it and paying off as many old, high-interest debts as possible. It certainly isn't an argument for taking out more loans.

What you mean to say is that you prefer a smaller state and lower public spending, whatever the interest, whatever the cost.

If I was a big-stater, then the argument would run that by paying off the debt, there would be more money to spend on social welfare programs. £30Bn a year more? Just think how many diversity co-ordinators that would buy.

[ttosca]

niceguy-

But looking at the ratio is misleading. The actual debt is shown on this graph using the site you used above:

lol. That's funny. So if the:

United States: Population 315 Million people, GDP $15,684,750 Million

owes £100 Billion dollars. This is worse than if

Samoa: Population 195,000 people, GDP $630 Million

owes £90 Billion dollars? Because the absolute amount is higher?

Your grasp of economics is impressive. :)

[niceguy2]

That's a stupid comparison.

We're comparing the debt the UK owes now which as you can see from the graph has grown at a hugely disproportionate level to our economy & population over the last 30 years.

We've been over this again & again. All you care about is how much we can continue to spend. You don't really pay any attention to the debt we're slowly racking up or even stop to consider that a debt must someday be repaid.

It doesn't matter if the borrower is the man on the street or a sovereign government. If you borrow money, the lender expects it back with interest.

Noone can keep spending & spending indefinitely. Not even the USA. Their time will come where they will be forced to address their national debt too. They just get longer since they are the largest economy in the world and the world reserve currency.

[ttosca]

ng-

No, the point is that debt is always measured in debt/GDP ratio, otherwise it doesn't make sense. It's the ratio of how much a country 'earns' to how much it owes. It therefore signifies the country's ability to pay back any debt owed. That's why it is used instead of the absolute figure.

We've been over this again & again. All you care about is how much we can continue to spend. You don't really pay any attention to the debt we're slowly racking up or even stop to consider that a debt must someday be repaid.

Well, since we're haven't been accumulating debt (over a long period) with respect to GDP, our ability to pay it back has not become worse. It has become worse recently due to the financial crisis.

It doesn't matter if the borrower is the man on the street or a sovereign government. If you borrow money, the lender expects it back with interest.

Our borrowing rates are also very low, signaling that lenders are confident of our ability to pay back our debt.

Noone can keep spending & spending indefinitely.

Sorry, but this doesn't make any sense. I've tried to clarify the picture for you. Our economy has grown over decades, and how much we owe, relative to the size of our economy has actually shrunk. On average, the decade or so before the financial crisis, we were in the best position we have been for over a half century.

Post crisis, we are not roughly at around the same debt/GDP ratio as we were in 1970, and rising.

We do need to address the debt and deficit, but this should be done in a way which is both constructive and fair. Our first goal must be to escape the depression, outside of which reducing the deficit and debt is nearly impossible.

We need to be fair in that the people and institutions who caused the crisis should be made to bear the cost, not the poorest and most vulnerable.

Most of all, the recession is not an excuse for you or the Tories to promote a small-state agenda, and attack social security and public spending.

[ttosca]

flatpack-

I don't understand what you're trying to say in your post. I'm not arguing that we should increase our debt.

I'm arguing the austerity is ruining any chance of economic recovery and possibility that we could ever reduce our deficit and debt.

[ElBurroSinNombre]

Historic debt to GDP ratios are completely irrelevent IMO. The world has never been in a situation like this before.

What really matters is the rate at which we can borrow money now and in the future. This rate reflects confidence in the ability of a government to repay the debt in the future. It is a shorthand for confidence in the long term management of the economy.
These interest rates are low at the moment. Because they are low does not mean that we can (or should) borrow a lot more to spend our way out of the recession. This would have the effect of raising the interest rates at which we can borrow - meaning that less of what we borrow can go into the economy. This sort of action has the potential to spiral out of control (as has happened in Italy and Spain recently)

[flatpackhamster]

ttosca

flatpack-

I don't understand what you're trying to say in your post.

This is my 'unsurprised' face.

I'm not arguing that we should increase our debt.

By refusing to cut spending, that's exactly what you're arguing.

I'm arguing the austerity is ruining any chance of economic recovery and possibility that we could ever reduce our deficit and debt.

You're arguing that if we cut spending, we can't cut spending, which is nonsense.

[ttosca]

flatpack-

I'm not arguing that we should increase our debt.

By refusing to cut spending, that's exactly what you're arguing.

Nope.

I'm arguing the austerity is ruining any chance of economic recovery and possibility that we could ever reduce our deficit and debt.

You're arguing that if we cut spending, we can't cut spending, which is nonsense.

Nope. Try taking economics 101.

If we cut spending drastically in the middle of a recession, this will exacerbate the recession, putting more people out of work and reducing tax receipts. Assuming public spending remains constant, the deficit will increase because govt. revenue will fall.

Hope this helps.

[ttosca]

What really matters is the rate at which we can borrow money now and in the future. This rate reflects confidence in the ability of a government to repay the debt in the future. It is a shorthand for confidence in the long term management of the economy.
These interest rates are low at the moment. Because they are low does not mean that we can (or should) borrow a lot more to spend our way out of the recession. This would have the effect of raising the interest rates at which we can borrow - meaning that less of what we borrow can go into the economy. This sort of action has the potential to spiral out of control (as has happened in Italy and Spain recently)

Yes, that's exactly what Osbourne would argue. George Osbourne, History major, responsible for a double-dip recession, no growth for three years, and rising unemployment.

When do you hope austerity will work its magic, Burro?

[flatpackhamster]

ttosca

Nope. Try taking economics 101.

If we cut spending drastically in the middle of a recession, this will exacerbate the recession, putting more people out of work and reducing tax receipts. Assuming public spending remains constant, the deficit will increase because govt. revenue will fall.

Hope this helps.

I understand the point you're trying to make. But while your claim is correct in the short term - say over 1-3 years - hefty cuts during the recession make the recession deeper but shorter and make the whole process less painful in the long term.

Further, your pretend 'cuts' when the going is good simply won't happen, because politicians are incapable of cutting spending when the going is good. Well, John Major's government managed it for 2 1/2 years, and Margaret Thatcher's government managed it for about the same amount, but that's all. The pressure to 'open the taps' when there's a surplus is too strong. That's why Keynes' economics is such a failure. It doesn't take in to account the mendacity of politicians. It works fine in a bubble where greedy politicos won't spend lots of other people's money to hang on to power.

[ttosca]

flatpack-

I understand the point you're trying to make. But while your claim is correct in the short term - say over 1-3 years - hefty cuts during the recession make the recession deeper but shorter and make the whole process less painful in the long term.

This is not born out by the facts. UK austerity has put the UK through the longest recession in 50 years:

www.independent.co.uk/news/uk/politics/britain-stuck-in-longest-recession-for-50-years-7973434.html

Either we change course now, or we risk 5-10 years of zero or low growth.

[flatpackhamster]

ttosca

This is not born out by the facts. UK austerity has put the UK through the longest recession in 50 years:

^www.independent.co.uk/news/uk/politics/britain-stuck-in-longest-recession-for-50-years-7973434.html^

If there had been any 'austerity' you might have a point. Government spending has not been cut. At all. It has grown since the coalition came to power.

Either we change course now, or we risk 5-10 years of zero or low growth.

Whatever we do that will happen. We have to endure the death throes of the Eurozone and the near-failure of the dollar before the world economy can recover. Unless you think that the UK can bring the world out of recession on its own?

[hopipolla]

It can't be denied that fiscal policy was far too loose before the crash in 2008, considering the period of economic prosperity there was no need whatsoever for the Government to be running a structural deficit and Brown is very culpable for the current mess for doing this IMO.

Having said that playing the blame game whilst potentially advantageous for politicians doesn't really help solve the current problems surrounding the public finances and the economy more generally.

[ttosca]

flatpack-

If there had been any 'austerity' you might have a point. Government spending has not been cut. At all. It has grown since the coalition came to power.

Yes it has:

www.guardian.co.uk/news/datablog/2010/apr/25/uk-public-spending-1963

Whatever we do that will happen.

Not true at all. Germany, the US, and China are already expected to growth about 10-12% by 2020. These countries are investing, rather than bloodletting.

We have to endure the death throes of the Eurozone and the near-failure of the dollar before the world economy can recover. Unless you think that the UK can bring the world out of recession on its own?

The UK is performing relatively worse, despite the poor economic climate, because Osbourne is sabotaging any chances of recovery. If the world situation improves, the UK will have better headwinds, but will still perform worse than it might have otherwise, had it not wasted all these years bloodletting and putting the UK economy in to a downward spiral.

[flatpackhamster]

Your figures don't match your claim:

2008-09 630.8 44.5

2009-10 671.5 47.7

2010-11 692.4 46.8

2011-12 693.6 45.4

Those are all rises in spending. Even by your preferred metric of 'as % of GDP' (and we know that you prefer it because it allows you to maintain the fantasy that spending is falling) spending is still rising.

Any figures after 2012 are projected, not actual.

[niceguy2]

Germany has been a beacon of financial prudence and so it's unsurprising they have money to invest. China. Well they are awash with money so for them investing isn't a big deal.

The US? I don't think they've woken up to their lightbulb moment yet. There was a flicker last year but it's gone again. Their day of reckoning will come. It just takes them longer given their role as the world reserve currency & the fact they are the world's largest economy.

But in the UK we like to think we're still a world power but in reality we're not. We're the little guy who hides behind the trouser leg of our big mate, America. Our finances are screwed, it's plain to see for all and so borrowing more to 'invest' without making cuts simply isn't sensible. I'd support investment from money saved from austerity. And I'd cautiously support very strict, limited borrowing for capital projects which will pay back over the long term. But right now we seem to be borrowing just to pay for public services we really cannot afford.

[ttosca]

Your figures don't match your claim:

LOL! You take pick and choose the four years which support your claim, even though the coalition wasn't in government for two of these years?!

Your claim was that the govt. wasn't cutting spending. The Coalition came in to power in 2010:

2010-10 692.4 46.8

2011-12 693.6 45.4

2012-13 674.3 43.1

2013-14 719.9 44.4

This is a fall in spending.

Secondly, many of the cuts are falling disproportionately on the poorest and most vulnerable members of society, when it is corporations and the very rich who should be paying for the crisis, since it was they who caused it.