Friday, August 06, 2010

What is so radical about massive public debt?

Why has political radicalism become synonymous with wanting to see a permanent and massive public debt?

As I have argued before, radicals cannot cite John Maynard Keynes in their support.

It is hardly a proletarian virtue: the working class always used to be wary of debt. It was the middle class that mortgaged itself up to the ears.

And large a public debt means that government, however radical or progressive or socialist, has to have one eye permanently on the institutions it despises the most: the finance markets.

Someone (I think he or she was behind the Times paywall) said that Gordon Brown did away with Labour's tradition of "tax and spend" by simply spending. But as that involved such high levels of borrowing, it is hard to see it as a way forward for the left.


Pete said...

Current UK debt is actually at an historic low UK Public Spending And “The main reason for downgrading the debt of Greece and Portugal was the prospect that forced austerity packages would be an even bigger drag on economic growth." say the rating agencies .

But hey! I bet you guys already know this stuff don't you?


dreamingspire said...

But, as the chart that Peter points to shows, public debt is rising very fast, and already higher than it has been for nearly 40 years. So the main task is to stop it going any higher.
The chart shows public sector debt falling rapidly after the end of WWII, stabilising in about 1973 and staying below that 1973 level until last year.

Pete said...


Nobody doubts that the the Budget Deficit will have to fall. That was Darling's policy and will be the policy of whoever is elected Labour leader too. Pretending otherwise(and I'm not suggesting you personally are)is to create a false dichotomy and is disingenuous to say the least. The only differences between the coalition and Labour is in the timing of cuts and their depth. The budget deficit happened because the private sector imploded because of gross incompetence by banks. Not because of anything governments worldwide did or didn't do. This lead to the economy shrinking and tax revenues therefore falling. The deficit cannot be cut without the economy growing. Labour left an economy that *was* growing - on the back of public sector spending. Cutting that spending too quickly (and to repeat, no-one's saying it shouldn't be cut) will kill off growth and maybe send us back into recession.

The economic debate is only about whether the coalition is cutting too much too soon and therefore threatening the recovery. I think they are: time will tell.

There is also of course a social and moral debate about the high unemployment the coalition is prepared to risk, if not deliberately create, and what this means to ordinary people and their communities - but that's a different story.


dreamingspire said...

Pete, the Coalition are threatening to cut an awful lot but will not cut all of it and are already letting some projects get running. For very many projects everything is of course stopped, but then some get the go-ahead: a batch of school projects were authorised yesterday. A technology project in which I am involved has been told that it is held until 23rd October but might be given the go-ahead sooner. John Suffolk, govt Chief Information Officer, wrote at the end of last week, on his blog of all places, that some ICT projects can go ahead:
It is essential to understand that the spending depts operate largely independently of the elected govt, curbed only by legislation and the funding tap - and, because of the inefficiency of a good number of them, an attempt is being made to give them a short sharp shock. One just hopes that there is some background negotiation going on to persuade them to reform themselves.

So we don't actually know what the total of cuts will be. But the current hiatus is causing considerable damage to the economy (which means cuts in jobs).