Alex Hern takes to task the Tories’ repeated refrain, most recently voiced by Claire Perry MP, that no one else is borrowing their way out of a borrowing crisis.
Tory MP Claire Perry took her party’s attempt to claim that their austerity program has international approval further than most last night, when she appeared on Radio Five’s Pienaar’s Politics.
Responding to Emily Thornberry’s claims the coalition had no plans for growth, Perry claimed:
“There’s only two parties in the world that want to borrow their way out of a borrowing crisis, and that’s the Labour Party and the North Korea’s worker’s party.”
Left Foot Forward will defer to her claim that North Korea wants to borrow its way out of a borrowing crisis. Even though it is doubtful, since North Korea is running a budget deficit of just 0.4 per cent of GDP, less than one twentieth of the UK’s, it would be churlish to pick on her too much.
However, her claims that Labour is the only other party in the world that wants to borrow out of a borrowing crisis deserves more scrutiny.
Firstly, even when David Cameron attempted to make a weaker version of the same claim, he was wrong.
At Prime Minister’s Questions on Wednesday 23rd November, Cameron ‘asked’:
“Of course it is a difficult economic environment that we are in, but is there a single other mainstream party anywhere in Europe that thinks the answer to the debt problem is more spending and more borrowing?”
It appears that Cameron doesn’t recognise the legitimacy of government of Denmark, because they provide an easy answer to that question. The Danish Red Alliance, elected in September this year, immediately introduced a £1.16 billion stimulus – which isn’t surprising, because the conservative coalition they took over from was planning to introduce a £1.25 billion stimulus.
The actual answer, however, is even easier. At least one British party other than Labour wants to borrow its way out of a borrowing crisis: The Conservative party.
Assuming we are in a borrowing crisis (rather than a growth crisis, or a jobs crisis, or a banking crisis), then the fact that the best plans of the Conservative Party, in the form of the Osborne plan, called for £149 billion of borrowing in 10/11 alone, makes it look an awful lot like they were trying to borrow their way out.
If borrowing one’s way out of a crisis didn’t work, our 2011/12 budget deficit would be zero. If it’s any higher, then we are borrowing. The fact we are now projected to borrow over £400 billion before 2015 means that the Conservatives clearly think borrowing out of a crisis works very well indeed – so the only debate left is how much to loan.
See also:
• OBR confirm Osborne will borrow more than the Darling projection – Daniel Elton, November 29th 2011
• Whatever Osborne’s growth forecasts today, the reality is probably worse – Daniel Elton, November 29th 2011
• Inflation report is bad news for Osborne’s targets – Tony Dolphin, October 18th 2011
• Cameron’s “failed experiment” leads to yet another economic downgrade – Alex Hern, October 17th 2011
• OECD prediction rocks Osborne’s deficit reduction hopes – Ben Fox, September 9th 2011
26 Responses to “No-one borrows out of a borrowing crisis, except the Tories, Labour, Lib Dems, Denmark…”
Nimmo79
Nonsense. The current deficit was incurred by a whole range of spending, much of which would be highly ineffective in terms of economic stimulus, such as bailing out the banks so that they could spend the next three years just sitting on the vast sums of public money thrown at them, or paying it out in massive bonuses to individuals, rather than actually lending. If this sort of money had been spent on stimulus-relevant projects such as infrastructure and – yes – welfare (because the poor are guaranteed to go out and spend the money), then we would indeed be seeing a massive boom. A deficit is not necessarily a stimulus – it depends how and where it is spent. Equally, a deficit has just as much to do with insufficient taxation as overspending, and tax cuts are also not necessarily a stimulus – again it depends which taxes are cut: cutting VAT is a stimulus, cutting the top rate of tax is not (because it adds to individual wealth rather than being quickly converted into spending).
Anonymous
Bank bail out – 70 bn. Most of that in share trading by Gordon Brown, and selling insurance after the fire. And how much stimulus has been applied since 2008?
400 bn in deficit spending.
QE – another 275 bn?
Bailing out the banks is a small part, and most of that is a government loss for buying at a high price. Paying over the odds for the shares. Ditto for undercharging for the insurance.
They haven’t sat on it, if you haven’t noticed either. They have been forced (Vince Cable’s idea) to lend it back to the government. That falls into the right plonker category. They could have cut the middle man out.
The current deficit was incurred by a whole range of spending, much of which would be highly ineffective in terms of economic stimulus
This bit is close to the truth. They have wasted the money. It’s the problem with government. It’s spending. It’s not investment. Giving the money to the poor does make them a bit better off. However, they then have to pay it back with interest. And what do they spend it on? Consumption or investment? It’s consumption. End result, its gone.
Even government infrastructure. Look at HS2. Ticket prices won’t cover the interest. It won’t cover the running costs. So someone who doesn’t benefit has to subsidise someone rich who does. It’s a negative return.
So back to Labour. All this investment in people. What costs get reduced, what extra cash gets raised. When is the government going to get the money back from its ‘investment’?
You let the cat out of the bag. The spending is ineffective. It doesn’t generate growth. It just generates debt.
That’s why, peversely, spending on the poor doesn’t help the poor long term.
What is needed is investment, and jobs. Government as you point out don’t do that.
So tax on investment needs to be abolished. State pensions systems need to stop accruing any more debts. People have to be forced to save. That way, money is available for the investment. That investment (so long as you don’t pull in low skilled migrants), means jobs for those poor people, and increased wages. Given that there is no tax on investments and everyone has to save, the poor get wealthier.
For example, if a median wage earner had been able to put their NI into the FTSE over the last 40 years, they would have a joint life, RPI income of 21K a year. Where’s the risk? It’s with the government who spent it and took over 75% of their retirement income away. Think again what that money would achieve in growing the UK.
It’s back to this.
The current deficit was incurred by a whole range of spending, much of which would be highly ineffective in terms of economic stimulus
It’s because the money is wasted. That’s why people are poor.
Nimmo79
I don’t have time to respond to that in anything like equal length. However, a couple of points: I don’t see that those on welfare have to pay the money back with interest – that just doesn’t make sense; perhaps you were thinking of credit cards. I also don’t think the notion that money which is spent on consumption is ‘gone’ – money is only ‘gone’ once it is funelled up to the top of the social and financial hierarchy, where it is no longer productive. I do agree however that the money spent has largely been wasted, not because government spending is wasteful by definition and only generates debt, but because the attempt made to carry out an effective Keynesian stimulus by a bunch of life-long Friedmanite neoliberals was predictably incompetent – largely because they just couldn’t bare handing out money to anyone but the rich and the institutions of the rich (i.e. finance), who were never going to do anything productive with it. QE is a massive case of this – effectively giving more money to the banks, from where it is highly unlikely to find its way to where it’s needed to promote growth. Finance capital has become anti-social and counter-productive: it doesn’t contribute to growth in the real economy at all, but actually stifles it in its constant search for a quick buck – that’s where the money’s gone, and that’s the problem.
eileen
No-one borrows out of a borrowing crisis, except the Tories, Labour, Lib Dems, Denmark… http://t.co/shmjgIEr – @AlexHern reports
Anonymous
However, a couple of points: I don’t see that those on welfare have to pay the money back with interest
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No, but you said that given them money was an investment. If its an investment, it reduces costs at a later date, or it generates an income. If not, its just spending.
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I also don’t think the notion that money which is spent on consumption is ‘gone’ – money is only ‘gone’ once it is funelled up to the top of the social and financial hierarchy,
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Well, if its spent on a cinema ticket, what’s the return?
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On the question of rent seeking, because that’s exactly what is going on, its a major problem. Be it banks, or greens. The common feature is that to rent seek, you need to get a government to do your dirty work. Yet another road where at the end you find the villain.
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When you talk about capital, look again at what’s going on. Goverment increases capital requirements – consequence less lending. Government taxes capital – consequence, less lending. Government blames banks for most of its problems (most is government, not banks), so people get the message. Government doesn’t like us, so we won’t play the government’s game.
Heck, lots of banks protected themselves against the problems, but they get tarred. A bit like saying look a lot of black youths commit crimes so we can blame all blacks. It’s identical to the arguments over banks. A few (retail not corporate) were bad, but what the heck we will villify all.
Well, they are going to move. No one sets up a hedge fund here any more. They incorporate overseas with no tax and run a management company here. Results lots of lost tax and that’s it. It’s not coming back. That is money that the government doesn’t guarantee, so if they go bust, no bail out is required.
QE, to reiterate is money from the government to the banks, who have lent it back to the government, who has spent it. The banks aren’t hoarding it.
So the real problem. Total up all the government debts, and its 7,000 bn on an tax income of 550 bn. That’s nothing to do with the banks. It’s all government. All parties have run the Ponzi and hide the debts.