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 :(

Defecit went to very high levels under Osborne's austerity. It only dropped below labour levels in the last few years as austerity was silently relaxed. However defecit is still >0 so debt grows - biggest debt leap was down to Osborne.

But Frankenstein, what was Osborne spending the money on? Was it benefits by any chance?

Get yes, the aim is to borrow to stimulate growth. More jobs means the benefits bill falls and the tax take goes up. If we build social housing then housing benefit is reduced. This is a ring fenced Local Authority financial commitment which means that goes down. Building provides jobs. If the LA can use this HB saving to provide more housing, the bill comes down etc. Secure housing provides better outcomes for families. Those children are more likely to pay tax etc.

Var the largest benefit slice goes on pensions.

I think there is a delayed effect in any monetary policy. It's not like you have a major recession today and the dole queues form tomorrow. It takes a while for companies to realise that their is no way around it but to cut staff.
It hurts because putting someone on the dole is a heavy responsibility to bear and besides you've invested in hiring them and training them. So, you do your best to cut other stuff first - less travel, less frills, make do and mend with office equipment etc.

"A question to see if anyone has a better idea - how high can our debt get before we are seriously screwed. "

There was a very serious examination of this question across 65 countries in a book called This Time is Different which was definitely considered one of the key post-financial crisis books.

The authors are from the US, and right-leaning (certainly by European standards), but I thought it was interesting that they noted that the UK has NEVER defaulted on its state debts - the only possible occasion that they could have been considered to have done so was when Henry 8th nationalised the monasteries and annexed their assets.

Because of this, combined with the fact that we borrow in our own currency (unlike the Eurozone countries who are tied into ECB rules it is deeply unlikely tending to the highly improbable that we would get to a situation where we were unable to borrow or where printing money (as the Conservatives have effectively done with their quantitative easing) would become impossible.

Obviously the big bogey-man is inflation, but the current situation and comparison with eg Japan & the 'lost years' suggests that actually right now a little more inflation would very arguably be a positive thing, helping oil the financial wheels a little.

Recently (since Thatcher/big bang) there has been a dominance of one set of ecenomic theorists.... The Argentinian school and it's influence is very interesting... Quite attached to their beliefs and very clear agendas to influence the real world economy.
Other ecenomic schools have started to question this. (I agree, I don't think free market ecenomics and 'trickle down' works for all).
In fact students at Manchester and London (lse or somewhere else I can't remember) have protested at the narrow university curriculum.... So we may be approaching a paradigm shift... Back to Keynes... Maybe or maybe not who knows

My apologies for the excess of brackets there

*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*

So in rough terms.

A country will tend to run either at a surplus or a deficit, these are both imbalances.

A deficit is a condition where we have a shortfall that guarantees that on top of "the usual" increase in a country's debt, it will go up due to our inability to break even. You can consider a deficit how far you are from being able to tread water. Deficit and debt are very different things, inevitable risng debt is a hard fact if you have a large deficit.

The Labour Party took conditions that should arguably have seen us running at a surplus and ran us into a very deep deficit. This was done prior to the financial crisis. If you do this, you bleed away the resilience of your economy significantly, so when something bad happens it can be very much worse than it would otherwise be. It is also arguable that this had its upshots in helping growth, to be fair.

So while you have a deficit the national debt WILL rise not just in line with normal national borrowing, it will rocket up. Even if you reduce costs a bit, it will still do so. The deficit that was largely created by the Labour Party looks likely to run for longer and dwarf what we have EVER experienced, including both World Wars and the Napoleonic Wars (the previous record holder), to put it into context for you. It is almost impossible for a country to go bankrupt, and that fact is largely why we haven't already "gone bankrupt" due to the deficit. A company or a household would certainly have gone bust years ago.

Until the deficit is cleared, the debt cannot stop going up at an ever greater rate, let alone start going down, this is what a deficit does. So in short when Labour give you a figure for "tory borrowing" they are telling a really quite dishonest story.

The deficit has in fact been reduced (even the Guardian admits this is fact), which is precisely what the Conservative govt have been trying to do. If the tories keep at it, we can expect it to be cleared after about 25 years, so we can look forward to the possibilityof the debt not rising any more, beginning then. Not the day Labour left govt and wrote that note about there being "no more money left", not from 2015, not from today, from some point in the future if we keep clearing it.

In short, the Labour Party handed us all a 25 year + problem of inevitable rising debt, the deficit, and the Tories are some way towards solving it. If we hand the reigns to Corbyn now and the deficit starts going up again, there is every possibility that in real life, as the Labour Party borrow more and more money and raise the deficit even more, we will see the NHS collapse completely inside 15-20 years and that some very serious changes in living standards, working conditions, pensions etc will afflict our children as the inevitable very large crash/depression wrecks their lives.

Sadik: "Obviously the big bogey-man is inflation, but the current situation and comparison with eg Japan & the 'lost years' suggests that actually right now a little more inflation would very arguably be a positive thing, helping oil the financial wheels a little."

And inflation would help reduce the deficit - is that right?

hackmum Yes, its also true that over the longer term inflation eats away at the real value of government debt.

metspengler - I can see that you have a very strong view on one side of the equation. I do think that Richard Murphy's analysis of debt over the post war period is interesting. That shows that historically Labour governments have borrowed less, and repaid more debt than Conservative governments, even if you ignore the post 2008 crisis years.

I think it would also be equally relevant when considering the historic record of Labour / Cons governments to think about North Sea Oil. One could (and should IMO) ask why the Conservative governments from 1979 - 1997 that presided over the glory years of north sea oil receipts did not - for example - build up a sovereign wealth fund (as the Norwegians did). Some debt was paid back between 1987 - 1993 but by 1997 debt as a %ge of GDP was at almost exactly the same level as in 1979.

I should also say that 1979 - 1997 - at the same time as failing to reduce the national debt, public spending fell very roughly from 40% of GDP to 35%.

So at a time of what was effectively a windfall tax inflow the government spent less but didn't reduce the national debt. Of course they also sold a large number of national assets, which also brought in money.

I can see that you have a very strong view on one side of the equation. I do think that Richard Murphy's analysis of debt over the post war period is interesting. That shows that historically Labour governments have borrowed less, and repaid more debt than Conservative governments, even if you ignore the post 2008 crisis years.

In decades long past almost every government has been prone to financial (and other kinds of) profligacy at some level. They tend to stack up problems we are all left with and are a bunch of bastards.

An analysis of history, though, is in no way relevant to the conversation about why "Tory debt" is actually a dishonest point, except as spin that might make Labour look a bit less bad to those who aren't paying attention.

Who cares which tribe fucked the country more in the 70s, personally I would be considered a floating voter normally, but thanks to this matter and others there is just no real opposition. There isn't really anything the Tories could have done to stop the debt skyrocketing for some 20 years short of abolishing the NHS, that's what a deficit at that level actually does as a matter of fact, not opinion.

It's like someone setting fire to your house then posting billboards around town about how you can't look after a house. For my part if Labour have nothing to do that is more credible than that, then saying "but look, the 80s!" is not a clincher. Denial about what the deficit even is, combined with tens of billions of extra spending on their manifesto states in non-nonsense terms, they are not going to fix the urgent deficit problem.

Lib Dems or Conservative are the only choices if you care even slightly about the country's finances on more than an "I'm alriight Jack" basis to be honest.

In short, let's not clutch at straws from the 70s.

The current deficit is a huge problem, it is the fire Labour set.

The national debt rising is the damage the fire is causing.

The billboards and posts about Tory (and Lib Dem coalition) debt are the arsonist criticizing others for how poorly they manage a fire.

I am interested in which party will acknowledge what the deficit is and talk about fixing it. A party that is pretending it doesn't exist to imply the national debt rose out of nowhere, and wants to start spending much more money, is just not making an attractive proposition.

It seems like you're happy to look at previous Labour governments, but not previous Conservative ones.

Saying that austerity doesn't work and won't fix the deficit really is pretty mainstream economic opinion, not the view of the radical left.

Certainly one of the main messages coming out of the IMF, for example, at the moment is that we need to be worrying about inequality and the impact on growth, rather than cutting government spending yet further. (When the IMF starts publishing papers with titles like Neoliberalism: Oversold? and questioning the benefits of capital account liberalisation you know things have got strange.)

"It seems like you're happy to look at previous Labour governments, but not previous Conservative ones."

No, I think both are untrustworthy and I'm interested in the current deficit, because that is what we HAVE to deal with. I realize you want to have a completely different argument with someone holding a position I'm not. Sleight of hand, nothing more.

Saying that austerity doesn't work and won't fix the deficit really is pretty mainstream economic opinion

The conservatives have in fact reduced the deficit.

I realize "mainstream" is supposed to be the password, though.

not the view of the radical left.

Where did the radical left come into it? Please don't put words in my mouth.

It was all going so well at being as unpartisan as possible....

I think the real problem is that it is genuinely impossible to separate economics from politics.

Economics isn't a science, there is no single 'right' answer (although there are some things that are more generally agreed upon than others), and it is inextricably intertangled with questions about values and desired outcomes.

(Is less inequality desirable? How much inequality is too much? Is growth desirable? What about the environmental impact of growth? What relative weight should we give to the wellbeing of the current population, as opposed to future generations?)

To pretend that there can be politically neutral economics is disingenuous at best, outright deception at worst.

caroldecker

That's quite a lot of qualifications, experience and academic expertise to write off in one fell swoop.

I think we still have to give some credence to their views. I'm not saying they are all right, but when we are all trying desperately to understand this very complicated issue, we are a bit lost if we don't listen to any of the experts.

@Var1234
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?

Wouldn't it depend on what you are spending the borrowed money on. If you had a minimum wage job that you can improve on but only by borrowing. You then decided to borrow money for university fee or the course/training that would improve your job prospect with better a wedge to pay back what you owe. Would that not be a good prospect and idea if you did achieve it in the end? This would be labours way of thinking isn't?)

Or would you invest on the selected few children instead by making sure they get better education so that they end up with a better life and probably better position to run the country and the economy. (Conservative re-grammar schools because there is not enough money to go round that can benefit every each child to a certain high standard required to run the country) And that's the gamble they want to take, isn't it?

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. In the case of hs2, is it that a bad example. It's unpredictable how technology in the work place would have shifted in 25 years when it comes employment and how we work and the sort traveling business people will have to do. I think this one of the arguments I have come cross this argument in regards the hs2. It would work better and the economy would benefit more now if it was already in place compared to the future in 25 years time.

But Frankenstein, what was Osborne spending the money on? Was it benefits by any chance?
Was it because of austerity measures by cutting jobs by any chance?
It depends how you look at isn't? Over all. The benefit spending is minuscule compared to others on the whole.

And also, free university for everyone. Would that impact on the minimum wage jobs if every child from now on got university degree? If that's the case there would be a case for immigration to fill up those jobs that needs to be done that highly qualified young people will not be happy to take on. You then have to look at how that would impact on the economy on the whole.

Ideas are all great but at the same time they can all be gamble.

Sadik The IMF does not support spending as a solution to excess deficit and it is not mainstream economic opinion, except in the case of recession - Look at the austerity forced on Greece, Spain, Ireland and Iceland (and Britain in the late 70's) after the crash.
Metspengler It is very easy for a country to go bankrupt. You end up with hyper-inflation or, in more recent times, use the IMF as lender of last resort because no-one is prepared to lend you anymore money. refusal of this and their austerity leads to hyper inflation.
You also get poorer internationally due to inflation. In 1973 we were at 2.5 USD/GBP (from 4:1 in 1940). We have been at an average of 1.5 since then.
In Yen terms, we have gone from about 800 in the early 70's to 200 (or less) today. We have become 4 times poorer compared to the japanese over that time.

caroldecker I'm not sure quoting the IMF is actually helping your cause.

The IMF have a "one size fits all" approach to economies regardless of the economy. And they impose draconian measures on the most poorest countries in the world regardless of need. Some have called the IMF a global loan shark.

The IMF have made some big mistakes and Greece was one of them when they forced Greece to pay their private creditors (which are always way down the creditor list). This forced the harshest of austerity measures and the economy to collapse.

Blandings I was responding to Sadik's post.
The IMF should never have got involved in the Greece Euro fudge, but stopping spending when you have no money is a necessity.