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Dworkin

(164 posts)
Thu Nov 24, 2016, 04:06 AM Nov 2016

The UK national debt

Hi,

Something is puzzling me. When Gordon Brown narrowly lost the UK election after the 2008 banking crisis, the Tory opposition ran on a fierce criticism of government borrowing. The national debt at that time was around £750 billion. Tory chancellor Osborne continued the incompetence meme against Labour and instituted 'austerity' in government finances. The result of this was an increase in the national debt to around £1.5 trillion at the time of Osborne's departure.

Now, the new Tory chancellor, Hammond, has told the Beeb that he intends to continue borrowing up to a notional limit of £2 trillion.

My question: If £750 billion of debt after a global banking crisis is incompetent, why is £2 trillion of debt after years of 'austerity' in government spending not incompetent?

D.

11 replies = new reply since forum marked as read
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The UK national debt (Original Post) Dworkin Nov 2016 OP
"It's OK If You're A Conservative" muriel_volestrangler Nov 2016 #1
Precisely. Denzil_DC Nov 2016 #2
possible outcomes Dworkin Nov 2016 #3
That wage stagnation comes on top of a decade or so of decline Denzil_DC Nov 2016 #4
The recession is an excuse to cut workers' wages in real terms. Bad Dog Nov 2016 #5
Right Dworkin Nov 2016 #6
Don't apologise. Bad Dog Nov 2016 #7
Agreed Dworkin Nov 2016 #8
The PLP's attempted coup mucked it all up. Bad Dog Nov 2016 #9
Deja vu Dworkin Nov 2016 #10
Distractions are all we have left. Bad Dog Nov 2016 #11

muriel_volestrangler

(101,150 posts)
1. "It's OK If You're A Conservative"
Thu Nov 24, 2016, 05:45 AM
Nov 2016

Exactly the same is happening in the USA; after 8 years of opposing stimulus spending, the Republicans are now going to embrace it (in the form, of course, of tax credits for companies buying up privatised bits of public infrastructure). and admit that the public debt was not at a dangerous level.

Denzil_DC

(7,187 posts)
2. Precisely.
Thu Nov 24, 2016, 10:40 AM
Nov 2016

It's similar to the dual standard that if the Brexit vote had gone 52/48% Remain, there would have been every justification for declaring it inconclusive, whereas anyone not buckling under now is a Bremoaner talking the UK down, or even a traitor worthy of hanging or stabbing and shooting in cold blood.

There's much to blame on Labour's time in government - deregulation of the City, the hands-off mentality toward whatever they decided to get up to (ring any bells in the US?) - but once the 2007/2008 global crisis hit, there were few good options beyond the politically and economically unthinkable of letting the big banks go hang and bailing out those plebs who were suffering because of their malfeasance. So they - i.e. all of us - bailed out the banks. The Coalition pursued the same policies when it took power, as the alternative was a banking crash.

Guess what? - Despite the measures enacted in the aftermath, we're still incredibly structurally vulnerable to any future crash, for much the same reasons.

I've posted this before, and I intend to do so every time the issue of national debt and austerity comes up:

FAQ: Reinhart, Rogoff, and the Excel Error That Changed History

Harvard University economists Carmen Reinhart and Kenneth Rogoff have acknowledged making a spreadsheet calculation mistake in a 2010 research paper, “Growth in a Time of Debt” (PDF), which has been widely cited to justify budget-cutting. But the authors stand by their conclusion that higher government debt is associated with slower economic growth. Here’s what you need to know:

How big is this mistake?
Reinhart and Rogoff wrote in their 2010 paper that average annual growth was negative 0.1 percent in countries with episodes of gross government debt equal to 90 percent or more of GDP between 1945 and 2009. Liberal economists have been critical of their work for years (just economists being their usual cranky selves), but now three economists at UMass say Reinhart and Rogoff made several mistakes and omissions. According to the UMass scholars, the “corrected” number is positive 2.2 percent—which means GDP still grows, even when debt levels are very high.

Do Reinhart and Rogoff admit they got it wrong?
They admit they accidentally excluded five rows from an average in their Microsoft Excel spreadsheet, but not the other charges. Fixing the spreadsheet error would lift growth in those high-debt countries to about 0.2 percent annually (still not that good). Adding country data that wasn’t available when they did the 2010 paper would boost growth further, to perhaps 0.5 percent (ditto). The UMass economists get all the way up to 2.2 percent by using a counting method that gives more weight to a few countries that experienced long periods of high debt. Reinhart and Rogoff insist that their method is better.

Wonky.
Yes, and Reinhart and Rogoff argue that it’s beside the point anyway. They put more weight on other data covering longer time periods, which finds that growth is about 1 percentage point lower in episodes of high debt compared to when debt is below 90 percent of GDP. (U.S. government debt is over 100 percent of GDP when you include debt owed by one part of government to another, such as the Social Security trust fund.) They say that even the UMass researchers found that high debt and low growth go hand in hand.

You mean that high debt causes low growth?
Not necessarily. Reinhart and Rogoff are careful in their academic work not to claim causation. It’s possible that slow growth leads to high debt rather than high debt causing slow growth. (Or maybe the causality runs in both directions.) One complaint of their critics is that in Op-Eds, interviews, and other non-academic work, Reinhart and Rogoff have sometimes flatly asserted that high debt leads to slow growth when other explanations are possible.

http://www.bloomberg.com/news/articles/2013-04-18/faq-reinhart-rogoff-and-the-excel-error-that-changed-history


There'd be a silver lining in the Brexit vote if it meant abandonment of the fetish over "the national debt" and the resulting wrongheaded drive for austerity. But now we're all bailing out the Brexit project, to a tune whose full scope won't emerge for a while, and continued - or worse - austerity will be the result anyway.

Dworkin

(164 posts)
3. possible outcomes
Thu Nov 24, 2016, 05:29 PM
Nov 2016

Hi,

That's a good comparison with the US GOP tactics, and I agree that high debt and low growth are complex relations and not clearly causal.

However, I remember a term 'stagflation' which struck the UK back in the day. Now, I am hearing from Hammond and others that UK wages are likely to stagnate for a decade. This is quite an admission. Against that is an admission of likely inflation due to Brexit costs and a low/falling pound. Another contingency is an end to the very low interest rates on government borrowing. I don't pretend to know why this is continuing, but it is a good bet that these rates will rise at some point.

If we hit a confluence of these things, we might remember that there is little family silver left in the government kitty for sell offs. The worst case scenario, only a possibility of course, would be grim, both at a national and personal level for many people.

D.

Denzil_DC

(7,187 posts)
4. That wage stagnation comes on top of a decade or so of decline
Thu Nov 24, 2016, 06:06 PM
Nov 2016
Britain has suffered a bigger fall in real wages since the financial crisis than any other advanced country apart from Greece, research shows.

A report by the TUC, published on Wednesday, shows that real earnings have declined more than 10% since the credit crunch began in 2007, leaving the UK equal bottom in a league table of wages growth.

Using data from the OECD’s recent employment outlook, the TUC found that over the same 2007-2015 period, real wages grew in Poland by 23%, in Germany by 14%, and in France by 11%. Across the OECD, real wages increased by an average of 6.7%.

The TUC found that between 2007 and 2015 in the UK, real wages – income from work adjusted for inflation – fell by 10.4%. That drop was equalled only by Greece in a list of 29 countries in the Organisation for Economic Cooperation and Development (OECD).

https://www.theguardian.com/money/2016/jul/27/uk-joins-greece-at-bottom-of-wage-growth-league-tuc-oecd


The government's response?

The Treasury said the TUC's analysis did not fully reflect living standards.


You can prove just about anything with statistics, but one has to wonder which planet - let alone country - they're living in.

Bad Dog

(2,025 posts)
5. The recession is an excuse to cut workers' wages in real terms.
Fri Nov 25, 2016, 05:04 AM
Nov 2016

While boardroom excess pretty much goes unchallenged, but instead of tackling that let's blame East Europeans.

Dworkin

(164 posts)
6. Right
Fri Nov 25, 2016, 05:43 PM
Nov 2016

Bad Dog,

You're right. This is part of a larger narrative IMHO, which I have witnessed happening since 1979 here in the UK. The immigrant diversion is just a recent phase in the transfer of power and wealth into the hands of those who already have it.

Some people call it 'neo-liberalism' but I just think it is the old strategy of divide and conquer. Once we wage earners, particularly poorer folk, are all on our own, we are economically divided.

There is a film on Youtube and iplayer "hypernormalisation" which I was unable to finish watching, as it was the story of the death of my political ideals. Maybe Thatcher was right when she said that "There is no such thing as society", at least not any more.

Apologies for my pessimism.

D.

Bad Dog

(2,025 posts)
7. Don't apologise.
Sat Nov 26, 2016, 06:19 AM
Nov 2016

Despite the monumental cock-up of a government we have right now I can see May getting in next time around.

Dworkin

(164 posts)
8. Agreed
Sun Nov 27, 2016, 05:57 PM
Nov 2016

Bad Dog,

Yes, they will have to F.U. really bad before we get a change, and Labour need time to get their house in order. In the meantime I am relying on back bench Tories and the Lords for sanity. Not a good feeling.

D.

Bad Dog

(2,025 posts)
9. The PLP's attempted coup mucked it all up.
Mon Nov 28, 2016, 06:51 AM
Nov 2016

Corbyn won't step down unless he loses the next general election, and maybe not even then. He listens to his own supporters too much, and seems to think huge popularity within the Labour Party is the same as huge popularity with the electorate.

Election night 2020 will be a very depressing affair, and I will take no joy from saying 'I told you so.' It's the 1980s all over again, right wing politics and ridiculous haircuts.

Dworkin

(164 posts)
10. Deja vu
Tue Nov 29, 2016, 06:11 PM
Nov 2016

Bad Dog,

You're right; it is the 1980s. I'm responding in precisely the same way: listening to radio 3 (less news), developing distracting hobbies, keeping my mouth shut in public.

The only difference is the internet and being retired. Unfortunately, as a paid up Socialist I have to worry about other folks, while being quite comfortable myself.

D.

Bad Dog

(2,025 posts)
11. Distractions are all we have left.
Wed Nov 30, 2016, 03:31 AM
Nov 2016

It's not like you can set a news alert to go off when something good happens. I'm following Saints even more closely this season. Beating Ronald Koeman's Everton doesn't make up for a Trump victory and Brexit, but it's a step in the right direction.

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