UK National Debt Options

[Invader Zim]

UK National debt counter

The National debt of the UK is rising by :-
£5,169 per second
£310,212 per minute
£18,607,306 per hour
£446,575,342 per day
(taken from the above web site)

Some people think the Government should spend more to get the economy growing - this means we borrow even more.

Other think the current plan of Cuts is the best option - get the debt down and the economy will start to grow.

What do forum members think

[Parsifal]

First and foremost should be full employment which in turn creates economic growth (through production and consumer demand).

It is widely argued that shrinking the economy during a recession (through spending cuts with higher unemployment) will make the situation worse. The government will have less revenue to go around and thus less to start reducing/eliminating deficits and reducing the national debt. Spending cuts to reduce the national debt is good economic policy when an economy has recovered and is experiencing growth.

If you shrink the economy then you've increased the debt to GDP ratio without have borrowed another penny.

BTW, since the nation's population increases every minute. A better statistic to look at than the ones on that website is amount of debt per inhabitant.

[gun_747]

A nice topic, you have described the two opposing views of economics, both with their own Nobel Prize winners; the fiscal conservatives and the Keynesian (who the last two decades call themselves "new Keynesian").

The accountant in me wants to go for fiscal conservatism - bad your debts, be responsible for what you borrow, as it works on an individual and firm level - if you borrow and can't pay due to your own irresponsible behaviour, then you/your business go into default, will suffer in long-term and thus paying debts is crucial.

However this argument does not bode too well, as deficit reduction policies have been implemented for years now and the economies are even in a worse state; mainly because, in my opinion, we are looking at a macroeconomic problem from a microeconomic standpoint. The growth of an economy is based upon many factors, mainly

Consumption (spending by individuals) + Investment (Firms) +Government Spending + Net Exports

The deficit reduction policies have cause and will continue to cause contractions in our consumption as more incomes are being slashed (higher unemployment/higher costs/higher taxes (e.g. fuel)); firms are not gaining the spending from consumers, which in turn causes their profits to fall, and businesses stop investing/also firms cannot access borrowing to fund their own expansions so we have a reductive multiplier effect going on - which in turn causes further contractions in growth. Government is currently employing contractionary fiscal policies, trying to reduce their costs, but stupidly due to the problems in consumption/investment, they will have to pay out more in unemployment benefits and retraining of long-term unemployed as their skills become obsolete in the medium term. We also have net imports, which is common for UK, so that never contributes to economic growth.

So the solution - government needs to spend. When firms do not, and yet the govt expects the private sector to grow by more than the amount of cuts they are doing in order to try and get economic growth. It can't happen.

As for our debt, we have always had debt, ever since the borrowed funded wars of world war 1 and 2. Inflation deals with some of the principal sums of the borrowed amount by eroding it's value over time, and it is posited that inflation too will impact upon our debt in the future. We have the means, as an independent country with our own monetary power (BoE) to employed expansionary monetary policy with government spending, but our politicans are not brave enough to do it.

I have other thoughts, but don't want to take over.

[KernowKid]

Ah the good old defflate the debt by infation argument.

Clearly we should deflate demand until it matches supply, then REAL growth can resume. Quantative Easing and the like, all add to the problem. I find it hard to resolve that even this Government, seems content to allow the deficit to continue to rise, when there simply isn't the underlying demand to warrant it.

[gun_747]

Well Kernow I felt exactly the same, and I don't posit that we allow inflation rise simply to cut the value of our debt, but it's a welcome side effect - the main point is this. Spain and Ireland did not have budget deficits in 2007 - I just rechecked the economic data for both. So they were responsible, yet the UK having massive debt, isn't affected by credit ratings plunges like Spain and Ireland are, because we have our own central banking system.

And the bigger point of them all, we have had deficit reduction for years now, and yet it's still growing, despite all the cuts that's hurting most of us. It took government spending to get the economies out of great depression, not govt cutting.

[KernowKid]

Comparing the Great Depression to what we have now is over dramatic. The supply side had all but broken then and radical measures were required. That is NOT the case now. It's sick yes, but by no means broken.

There's room for contraction to rebalance the forces of S and D, albeit with it's temporary downside of more unemployment and near or below zero growth. Once achieved the soeed of genuine demand driven growth, when there's the realistic possibility of decent returns, will more than likely outweigh the initial hardships.

[Parsifal]

There is no evidence that the downside of more unemployment and near or below zero growth is temporary and the end is in sight. Business confidence (in the US) is showing no vital signs. Companies in the US are sitting on $2 trillion in CASH! and are not hiring and are not investing in R&D. Surveys show that they won't hire or invest until there is more demand for their products. The only way that I can think of increasing consumer demand is to pay more in wages either through hirings or increases. Since the private sector in the US is not creating jobs who is left? (Quiz question) And I'm not suggesting do-nothing government civil service jobs. I'm suggesting investment in infrastructure. (Hmmm. The 1930s comes to mind.)

Although the thread topic is about the UK national debt and my response talks about the situation in the US, I believe that the same economic principles apply to both sides of the Atlantic.

[sanitynotincluded]

The advisability of taking on additional debt must always take into consideration how much debt you you are already carrying. If we hadn't spent the past decade running up ever increasing piles of debt, then we might be able to afford the keynesian delusions. The sad fact is though that we have managed to con the markets that our government is serious through the pretend cuts, but if we throw off the pretence, the cost of borrowing will go up and the extra money we borrow will all be taken up servicing the increased debt costs.

both with their own Nobel Prize winners

Nobel didn't endow a prize for economics. Anyone who claims to have one is liar, just as much as I would be if I claimed to have a Nobel Prize for tiddly-winks.

It took government spending to get the economies out of great depression, not govt cutting.

It took a world war to get out of the after effects of the great depression.

People use that as an example, but ignore the fact that it was atypical in that ordinarily, the deeper the dip, the faster the recovery. The two stand out exceptions are the depression, and the current problems, and the key point of similarity is that those were the two occasions where governments tried to do most rather than getting out of the way.

Idiots out there like to talk about keynsian multipliers, missing the point that they are less than one. Governments possess neither the information nor the capacity to process the information to make decisions on a national (or heaven forbid an international) scale to match those that millions of individuals can make on an individual scale.

Keynsian stimulus is the monetary equivalent of giving an alcoholic vodka and pronouncing it successful because it helps them get over the shakes.

[gun_747]

the discussion slightly taking a bent towards "idiots" etc. and I like to talk about things not argue over them, so my participation in the discussion is over.

[Parsifal]

No doubt about it. Our elected officials going way back have been incompetent and reckless (to put it nicely) to have gotten our countries so deeply into debt. And something has to be done, of course. Some actions will improve the situation and some will make it worse. Let's not make a mistake.

The only way to get us out of this recession/depression is to jump start the economy by getting people to spend more which will increase production and put people back to work.

But to get people to spend more you have to put money in their pockets.

The best way to put money into people's pockets is to give them jobs.
But the private sector isn't hiring (even though in the US they're sitting on $2 trillion in CASH!). They're waiting for people to spend more money before they hire and invest in R&D.

So who's left? Some 1930s-style infrastructure projects will put lots of people back to work. And those people will start paying taxes (instead of receiving unemployment benefits, if they're still receiving them). Can't hurt to re-hire school teachers who have been laid off considering the US's dismal academic performance compared with other advanced countries. Infrastructure and education are investments in a nation's future. Otherwise we're slowly digging our graves.

Cutting government spending to reduce government debt is best done when the economy is humming along. Not smart to shrink the economy even further during a recession.

It took government spending to get the economies out of great depression, not govt cutting.

It took a world war to get out of the after effects of the great depression.

That's a (convenient) deception.

Truth is that until 1937 the US's economy was recovering very nicely with the help of large amounts of stimulus spending. But then FDR made the disasterous mistake of pre-mature confidence and ended the stimulus spending. That year the economy sank back into depression and didn't come out again until defense spending for WW2 created jobs and put money into people's pockets (actually women's pockets because the men were off fighting). In both cases it was a matter of stimulus spending whether it was New Deal projects or WW2.

A similar thing happend with Obama's stimulus package. The economy was slowly recovering until the stimulus spending ran out and then things started to sink again. Many say that the stimulus package was not large enough.

[Dominus]

The advisability of taking on additional debt must always take into consideration how much debt you you are already carrying. If we hadn't spent the past decade running up ever increasing piles of debt, then we might be able to afford the keynesian delusions. The sad fact is though that we have managed to con the markets that our government is serious through the pretend cuts, but if we throw off the pretence, the cost of borrowing will go up and the extra money we borrow will all be taken up servicing the increased debt costs.

both with their own Nobel Prize winners

Nobel didn't endow a prize for economics. Anyone who claims to have one is liar, just as much as I would be if I claimed to have a Nobel Prize for tiddly-winks.

How's this website then?
Merely asserting that Nobel didn't endow it is irrelevant, the Nobel Foundation accepted a gift from Sveriges Riksbank and established a prize in the economic sciences.

Governments trying to get out of recession by cutting spending make the situation worse - NZ had a recession in the early 1990's because the conservative National government slashed spending on benefits - and triggered a recession as a consequence.

Going back to the 1930's the Forbes-Coates coalition attempted to engage in policies of retrenchment to get out of the depression - it caused the depression to last longer. The election of the first Labour administration in 1935 saw the usage of Reserve Bank credit and Keynesian economics to get the country out of the crap that Forbes and Coats had got the country into.

[sanitynotincluded]

How's this website then?
Merely asserting that Nobel didn't endow it is irrelevant, the Nobel Foundation accepted a gift from Sveriges Riksbank and established a prize in the economic sciences.

The fact that It had nothing to do with Nobel is not only relevant, but central.

As the website correctly states, it is the "Sveriges Riksbank award".

That the Swedish central bank bunged the foundation to sprinkle some hijacked fairy dust on their award is of itself indicative.

As for the desirability of spending, Estonia and Latvia are fine examples. Both responded to the current crisis by implementing actual cuts (as opposed to Cameron's pretend cuts) and are currently enjoying far better growth rates and recovery than the rest of Europe. Lithuania is lagging a bit, but they hiked their tax rates at the same time.



This post has been edited by sanitynotincluded: Jun 20 2012, 17:29

[Parsifal]

You couldn't think of a bigger economy than Estonia and Latvia?

I understand that Sweden is doing very well through all of this.

[Dominus]

How's this website then?
Merely asserting that Nobel didn't endow it is irrelevant, the Nobel Foundation accepted a gift from Sveriges Riksbank and established a prize in the economic sciences.

The fact that It had nothing to do with Nobel is not only relevant, but central.

As the website correctly states, it is the "Sveriges Riksbank award".

That the Swedish central bank bunged the foundation to sprinkle some hijacked fairy dust on their award is of itself indicative.

As for the desirability of spending, Estonia and Latvia are fine examples. Both responded to the current crisis by implementing actual cuts (as opposed to Cameron's pretend cuts) and are currently enjoying far better growth rates and recovery than the rest of Europe. Lithuania is lagging a bit, but they hiked their tax rates at the same time.

Sveriges Riksbank may have endowed it, but the Nobel Foundation awards it. It does not give you cause to slag the Riksbank off in the manner you do - they gave the money to celebrate their 300th anniversary.

Incidentally, Swedish economic growth is 1.5% over the last year, whilst countries engaging in retrenchment contracted their GDP over the same time period.

I quite like watching the Swedish economy - it reminds me of an idiot right-winger in NZ politics in NZ called Rodney Hide who claimed in the 1990s that the Swedish economy was uncompetitive - except they had a balance of payments surplus that was about 4 times the size of NZ's balance of payments deficit.

[sanitynotincluded]

whilst countries engaging in retrenchment contracted their GDP over the same time period.

Except that the countries who actually cut stuff aren't contracting.

[Parsifal]

whilst countries engaging in retrenchment contracted their GDP over the same time period.

Except that the countries who actually cut stuff aren't contracting.

Greece? Ireland? Portugal?

By the way, how is Malta doing?

[stulancs]

Sweden has a manufacturing base that the UK lacks, especially considering the size of its population.

[Parsifal]

Sweden has a manufacturing base that the UK lacks, especially considering the size of its population.

Where did the UK's manufacturing base go? To China?
Ours dispersed all over the world, some of it right across the border to Mexico. White collar jobs too. A big reason for our high unemployment I suspect.

[stulancs]

British manufacturing went pretty much everywhere except Britain.

[Parsifal]

British manufacturing went pretty much everywhere except Britain.

I guess the "magic of the marketplace" sent the jobs elsewhere.