Friday 11 February 2011

False Economy - False Premise

The TUC backed False Economy is in denial. Denial about the need for cuts, if not actual deficit, denial. Steven_L highlighted this at at the Squeeze blog.

He supposed that between 1950 and 1979 the UK was benefiting from friendly, soft loans, made by the Americans. And he is absolubtely right. The cold war was on. The USA needed its liberal allies to be able to afford at least some sort of armies to defend themselves. Western Europe wanted to spend all the money on healthcare and schools instead of tanks. So the US allowed soft loans to let their overspending allies have guns and butter. But mostly butter. That lasted right up until the IMF came in as a result of the Americans having had enough of socialist experiments and calling in their markers.

The IMF crisis wasn't triggered by the lamentable state of the British economy, although that hardly helped. It was markets saying 'Good-bye Great Britain" that caused investors to lose confidence and the pound to slide until the humiliating loan become necessary. That does not appear to be mentioned by False Economy. It seems the graph doesn't show a problem with Britain's long term debt in 1976 either. Nope. The crisis that tipped the country into meltdown doesn't really get a mention. FE seems to believe that the markets aren't much of an issue. These are the False Economy graphs. And pretty economical they are.

UK national debt 1990-2010

We can see that while the national debt is higher than it's been for some time, it's still lower than it's been for most of the last century.

Not really. Not in the last 40 years.

Here's a chart showing national debt in 2008 for a range of prosperous countries.

National debt in a range of prosperous countries

Again you can see that there is nothing special about the UK's debt when compared to other countries.

And there are two other important differences between the UK and those in much worse circumstances.

  • First more than 70 per cent of UK government debt is held within the UK by things like pension funds. It is a mistake to think that our national debt is all owed to other governments or foreign speculators.
  • Secondly UK debt is more long-term than many other countries. On average our debts have a pay-back period of 12 years. Countries like Greece need to keep paying back debts and are forced to borrow more to make up for that. The UK does not face any problems refinancing its debts.
All these figures are at odds with other sources. Wikipedia alone has the USA 1st and the UK 2nd as the world's most externally indebted countries. The UK by 416%. of GDP. The CIA world factbook on public debt has the UK running slightly ahead of Germany. That's Germany who bailed out the EU and fairly recently had to do a rather expensive reunification. Norway is a long, long way behind the UK . There is no mention that Japan has had 20+ years of stagnation.

And why do the data only to 2008? Its 2011 isn't it?
Is it because UK national debt soared beyond the stratosphere after 2008?

National Debt as a % of GDP increased from 30% in 2002 to 37 % in 2007. This was despite the long period of economic expansion. From figures published September 2010, UK public sector net debt was £952.8 billion. (or 64.6% of National GDP) – Source: Office National Statistics.

Wouldn't want to show the national debt is now TWICE as bad as the piddly graph shows would they?

Using a historical context to say 'everything is fine..we've done it before' seems incredibly naive. There is no cold war. There are global markets. We aren't a superpower anymore. There is a European Union. The American's may decide they don't want to bail us out for a fourth time. Times change. The UK hasn't always got away with it before. There is no guarantee it would do so again. The consequences that the Irish/Greece economies have had to face are not considered. False Economy is just False Hope.

I suggest that the Squeeze's conclusions are mostly right and that False Economy's are mostly wrong.

Also missing is any mention of Britain's total default on its WW1 war loans, the Anglo-American loan of 1946, Lend-Lease or the Marshall Plan that all effectively bailed out the nation one way or another. But that's history, and history we leave for the weekend.


Nick Drew said...

good post (& much needed for a rather wider audience than we reach !) at a time when the the Labour party, notwithstanding Mili's 'official' position, is becoming emboldened to adopt shorthand, denial-lite statements at every turn (see QT passim) to get the mob baying against The Cutz

Balls knows how to frame a good sound-bite lie all right

he will drown Mili out in a very few months, if not weeks - and will find plenty of evidence that it's working with a large sector of the great unwashed

Steven_L said...

Thanks for the vote of confidence BQ! their site is full of dodgy economics.

Every time I'm short of something to post about I'll pay their blog a visit I think!

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