Saturday, October 10, 2009

Being "Honest" on Debt

I indulged in what could be called a mini rant the other night when one of my friends suggested that the "Tories may be evil, bit at least they're being honest about debt"

What set me off about this comment was that it was exactly what the Tories wanted people to think. The Tories have been talking up the issue of national debt, they have also frequently accused Britain of having the largest budget deficit going into the recession in full knowledge of the fact that many people don't know the difference between the words "deficit" and "debt".

The Tories rhetoric on debt ignores the point that in fact Britains national debt was the second lowest in the developed world going into the crisis, it further ignores the point that gilt yields are at record lows. Further to this it ignores a lot of the complex issues surrounding debt. When talking about the national debt it's worth considering several other important factors. As well as the national debt, you need to consider consumer debt and business debt, you also need to consider the value of assets.

The point of all this is that when the government spends money that money has to go somewhere. Every pound of government debt will go on a journey through the economy until it either A) goes abroad or B) ends up in someones savings*. The result of all this is that while the government picks up more debt, businesses and consumers will actually find themselves in a better position. We can already see this happening in the form of higher UK household savings.

The Tories simplistic posturing on debt ignores the many complex issues surrounding government debt and debt more generally. They are not being honest at all, they have misleadingly raised concerns over government debt and acted as if this is the central challenge facing our economy, this just isn't true.

1 comment:

Randeg said...
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