Not goady, I ACTUALLY just want to understand!!

[HackAttack]

Right the big anti Labour argument I'm hearing is that Conservatives are better for the economy but national debt/borrowing has hugely increased under Tories while services are cut to bugger all.

I work in a service where I can see how much has been lost and yet the deficit is bigger??

I'm the first to admit I am not an economist so this isn't goady, I've asked on a few threads and no one will answer :(

One issue with the legacy of the Blair government was the need to address the child poverty that had arisen under the previous Conservative government. The Labour government's system of tax credits did a lot to alleviate child poverty, but then some would argue that it created a system whereby the government is making up for employers not paying a decent wage. It would of course be ideal if a government could implement a system whereby there were enough jobs to go round and every salary was enough to provide a decent standard of living!

One thing that strikes me recently is the increased number of homeless people I see. I remember homelessness as a big issue in my childhood in the 80s and early 90s, which seemed to virtually disappear in the Labour years. I don't know enough about their homelessness policies to know whether it was just hiding the problem, but it is something that bothers me.

Some reading for you...
www.ukpublicspending.co.uk/uk_national_deficit_analysis

www.theguardian.com/business/ng-interactive/2015/apr/29/the-austerity-delusion

I think you are right to question why overall debt has increased despite cuts... The deficit/debt angle has been well explained.
But one thing you might want to consider is investments... As a nation (both political parties in recent history) we have been poor at investing (in infrastructure, training, tech etc). I'd say this was both at a national level and true of many companies. I'm not very sure if that's because we are risk averse or short termist.. But sometimes you need to borrow to invest to make longer term gains. For example if I own a box making factory and there is a, machine that can make 100 more boxes a day but costs £1100... Then I can borrow money to buy said machine based on shifting those extra boxes.
Of course nationally choosing what to invest in for a good return is not always that simple. It's not always clear. But imho there have been cuts that have very obviously made no financial long term sense. Plus it's cheap to borrow at the moment. Historically our debt ratio is not as high as it has been, yet the rhetoric is that cutting the debt is paramount...(make of that what you will... But ideology plays a role)

Interesting invisible kitten. I suppose the Conservatives can't get away forever with the idea that the economy is doing well but we still need to worry about it! I wonder what sort of time period that would be?

And please don't forget immigration when thinking about the economy (although it seems to be a dirty word now). Countries with ageing population (PIIG countries, Japan etc) have stagnant economies and higher inequality. Immigration mitigated for this but brought other issues
www.economicshelp.org/blog/8950/society/impact-ageing-population-economy/
One way to solve this would be to invest in existing and future workforce to develop high tech, high end jobs. UK used to be ideas rich but poor at implementation.

You have to remember that borrowing is not just driven by spending, but also income.
The deficit is the net of income and spending and was very high in 2010. The UK economy is not quite like a household, but thinking in that way can help understanding.
Basically:
Up until the 2008 recession we had 2 incomes with large bonuses and were out spending the money (either spending on essential household goods and services or pissing up the wall depending on your political view)
The recession means one earner is made redundant, so sudden fall income - deficit grows.(analogy starts to fall over)
The Conservative argument is that you need to reduce spending to get back to equilibrium (and the non-earner job hunts to get more revenue), but total debt grows because you cannot cut all spending immediately (contracts etc) (analogy teetering)
The Labour argument is you need to continue all the spending (as was essential) and spend more on job hunting for the non-earner. Debt also grows and faster, but the job hunter gets new high paying job more quickly so can pay back debt faster (analogy collapses in a heap)

Some people also argue that using the word invest implies a return.
It depends on whether the investment will actually produce a return, or is it just spending?

Good thread OP, I'd also like to thank the posters who have contributed and echo the sentiment that hopefully no-one comes along and drags it into the gutter where most political threads end up.

The major parties each have a flawed system based in dogma but I can't think of a better one.

This is worth a read. It's by a team of economists and undertakes an analysis as to whether Labour or the Conservatives are more fiscally conservative looking at a range of measures.

www.primeeconomics.org/articles/taq30tk04ljnvpyfos059pp0w7gnpe

It's also very difficult to judge from the figures whether it's due to the current government or the previous one which didn't last long enough to see the returns on their investments.

Things have a time lag - but how long?

I would like to contribute this.

www.theguardian.com/news/2017/jun/03/the-big-issue-labour-manifesto-what-economy-needs

An impressive list of signatories have put their name to it.

You need to proper google it. You won't find an answer on here - just very opiniated opinions. Mostly left ones. And I'm a Labour voter

I've read lots!! It's really helping but now I've got some direction I'll keep learning, particularly till Thursday, thank you everyone and I'm glad the thread is helpful

The debt is bigger, but the deficit is smaller, surely?

So, an analogy would be that someone used to overspend their salary every month by £1000 and they borrowed that extra money on their credit card I.e. (A deficit of £1000 pcm). After a year, they had a debt of £12000 plus interest and they decided to try to stop overspending as much as possible. So, they cut back on their spending each month (austerity), and they tried as hard as possible to earn some extra money. However, several years later and despite having cut a lot of their monthly costs, they are still overspending every month, but by less than they used to. However, the debt is getting bigger all the time because they are still borrowing every month rather than paying off the debt and even the interest payments are mounting up.

It's not been an unqualified success these last six years, that's for sure, but is it better that as a country that we tried to reduce our spending on the sort of stuff that isn't an investment for the future? or should we have just overspent without trying to control it at all?

My understanding is that this is a good time to borrow and invest because interest rates are so low. I do also wonder what effect leaving the EU will have on our water/rail etc that are owned by EU companies and state owned enterprises. I don't know if there are EU laws that govern their behaviour within EU countries.
I'd be interested to hear if anyone knows!

Great thread. Watching with interest.

tookawhile Unfortunately economists do not have good press in real life. 364 economists wrote a letter to the times in 1981 condemning the Conservative budget which preceded the end of the recession and growth until 1987.
They also missed the 2008 economic crisis.
The key failing in economists is that they see people as rational and knowledgeable, when we know they are not.
I know people who worry brexit will move us to a barter economy, but they have not reduced spending, are not saving in USD/Euro - basically their behaviour does not reflect their beliefs - see also smokers, non-exercisers, over eaters, sports people who have a pain killing injection to mask injury, etc

Can I ask a stupid question please? Can some one explain the invest to increase money bit?

Ok wait, I think I have it. So the government spend money onsay, building railways, which gives people jobs, which gives them an income which is then taxed? But at what point do the taxes raised pay off the initial outlay? Will the taxes then switch from being collected from the builders to being collected from the train drivers? Who are employed longer and therefore we take tax off them for longer so at some point it will switch from paying off to profit?

Is that it?

You invest by building some infrastructure project e.g. A new motorway, or double the capacity of an airport or even by providing a highly skilled workforce. That enables companies to establish and grow. They employ people and the companies pay taxes. Those people not only pay taxes too, they help the economy further by spending the money they've earned and that helps more companies grow which leads to more people in employment and yet more taxes collected. A virtuous circle that us every governments dream scenario (but it takes much longer than 5 years for the benefits to be seen and they say a week is a long time in politics. Chances are that it's the other party who will get the credit for the things you did to turn the economy around).

And if govarent spending then there are less jobs created, and business creates less jobs as also tightening belts, so unemployed number goes up.

So it is a balance of employment rates and spending.

But the reason the unemployed rate is low ATM is because of zero hour contracts- but this is misleading as people are not doing the work to get taxed to raise the Money? So unemployed rate looks good but no actual raise in tax revenues?

Sorry for brain dumping while I figure this Out!

For governments, there is 'good' borrowing and 'bad' borrowing.

An example of 'good' borrowing would be to invest in a new high-speed rail line connecting major cities. This new railway should help to create enough economic growth to pay for itself and more besides.

An example of 'bad' borrowing would be to pay for unemployment benefits. This would be, in every way, a drain on the economy.

And that is called Keynesian theory?

That's about the size of it.
Also people who don't work get paid benefits. So, not only aren't they contributing taxes, but they are actually receiving the taxes other people paid which has a doubly detrimental effect.
The problem with low salaries is that they are also topped up with benefits, but, with any luck at least their employers will be making a profit so there is some tax to be collected.
I have an idea at the back of my head that companies actually pay more tax in total that the government collects through income tax