Martin Wolf has a blistering piece in today's Financial Times (£) challenging David Cameron's stubborn adherence to austerity economics.
[Labour] think that by borrowing more they would miraculously end up borrowing less … Yes, it really is as incredible as that.
What truly is incredible is that Mr Cameron cannot understand that, if an entity that spends close to half of gross domestic product retrenches as the private sector is also retrenching, the decline in overall output may be so large that its finances end up worse than when it started.
Wolf then turns to the argument repeatedly put forward by the coalition as well as a rabble of right-wing interest groups that spending under Labour was “out of control”.
This deficit didn’t suddenly appear purely as a result of the global financial crisis. It was driven by persistent, reckless and completely unaffordable government spending and borrowing over many years.
Wolf busts this myth in a single blow:
In 2007, according to the IMF, UK net debt – at 38 per cent of GDP – was the second-lowest in the Group of Seven leading economies. These levels were also exceptionally low by UK historical standards (see bottom left graph).
Some think reckless spending explains the jump in government spending from 40.7 per cent of GDP in 2007-08 to 47.4 per cent two years later…No: the collapse in GDP, relative to expectations, caused the jump in spending and decline in receipts, relative to GDP.
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16 Responses to “The FT tears apart austerity economics (again)”
LB
Still misses out the debts such as the 5,300 bn pension debts.
Until you own up to that you, the tories and the lib dems will carry on screwing people and making them destitute.
Gareth Millward
I’ll bite. Could you provide a link to where you keep getting this £5.3t figure from?
LB
http://www.ons.gov.uk/ons/dcp171766_263808.pdf
Bottom of page 4.
Two years ago, it was 5,010 bn.
Since the state pension is a complex derivative, it’s growth since is at least 2.5%.
So scale up the number for two years increase.
Gareth Millward
OK, but how much is the government actually expected to pay each year? Surely that’s a more important figure? What will the growth be, year on year, in social security spending as a result of these liabilities?
The £5.3t doesn’t have to be paid in one go. It cannot continue to grow exponentially, and something must be done. But the idea that somehow pensions should be dispensed with is not borne out by these figures.
You need to show how much those liabilities are actually going to cost, and offer a concrete proposal of how to get them down. Again, it’s not the gross level of debt which is NECESSARILY the issue – it’s whether you can eventually pay it off.
With pensions the way they are now, we will hit a crisis in a few years, because too many people will be claiming and not enough contributing. But that will always be the case with something like pensions when some are paying in and some are taking out.
You called my argument useless in another comment thread for not providing statistics. Since then, this blog has provided those statistics. I said at the time that I was careful not to pull out IRRELEVANT statistics to further my own agenda. I feel this is what you are doing, spamming every article on this site with this irrelevant tripe.
It’s a problem, yes. But contextualise it. And provide some sort of solution.
LB
1. It isn’t paid on demand. Neither is the debt. However, if you converted the pensions into debts, it would cost at least that, 5.3 trillion.
2. As it stands, with the current rules, it will grow exponentially. There is a triple lock. Max of wage inflation, price inflation or 2.5%. That means it is exponential growth.
Now that won’t happen, and it won’t happen because the state won’t pay because it can’t. What makes you think the state can pay 14 times its level of taxes when its spending .130% of its tax?
“Again, it’s not the gross level of debt” Really? So you can borrow 100 times your earnings – no problem? Hmmm
“it’s whether you can eventually pay it off.”. Quite. They can’t. Now consider the consequences. No state pension. Hmm what are people going to do? Welfare? Er, if they can’t pay pensions they can’t pay it if you change the label.
“But that will always be the case with something like pensions when some are paying in and some are taking out.”
“Since then, this blog has provided those statistics”
And why then has it missed the pension debt off? No doubt its been lost down the back of the sofa. Someone’s be hidding the reminders.
The debt figures are manipulated to make the debt ratio smaller. eg. % of GDP figures are a ratio.
So if you want to manipulate debt / income, you need to make the denominator smaller.
1. Omit debts
2. Pick a large discount rate. eg. Use an asset rate for a liability even when you don’t have any assets.
For the numerator
3. Include other people’s income to inflation your income. GDP instead of taxes.”
“spamming every article on this site with this irrelevant tripe.”
The article is about debt, and its based on the premise that debt is low. Pointing out the lies on the debts, because that’s exactly what it is, a lie, in order to justify spending more is far from tripe.
That’s what its all about. Lets spend people’s pensions now, and in the process make them destitute. You might think that’s a great idea, perhaps because you’re one of the people getting their money
Personally making people destitute I put in the evil category.