Tuesday, May 5, 2015

Austerity & All That.

My parents were very keen on the idea of savings. If I or my brothers wanted some new toy or what-have-you, we were told to save up some money and buy it. Occasionally it would be, "if you can save half, we'll pay the rest". Whatever it was, we were raised on the idea that you can't have everything straight away. It's a message that's still kind of hard wired into me.

The Smallest Radiator In The World

But when, as an adult, I was able to buy a flat my parents didn't tell me that I was making a terrible mistake and that I shouldn't get into that much debt. They didn't tell me that I should save up all the money first and that only then should I be able to buy a property. A mortgage isn't the kind of debt I was raised to be scared of. It's the kind of debt I was raised to aspire to.

But it is a kind of debt.

I was thinking about this on my way in to work this morning. Because one of the things I keep hearing in this election campaign is about the various parties' plans to eliminate the deficit. And when I hear the phrase it sounds like common sense. Because debt is bad. Just like my parents taught me.

But then not all debt is bad. A mortgage - one you can afford, at least - is sensible debt. It makes more sense to live somewhere and pay for it while you're doing so, than it does to go without.

And it feels like Great Britain is doing quite a lot of going-without at the moment. And the excuse for all these austerity measures - all this cruelty - is that these cuts are necessary. These are tough decisions that nobody wants to make. It's time to tighten our belts. Etc etc.We must eliminate the deficit.

But isn't that, y'know, a load of bollocks? It seems to me that we really shouldn't be trying to eliminate the deficit. In fact, I'm pretty sure we ought to have a deficit. If we're paying for things that will exist for generations, the cost of those things should spread across the generations. Especially when the alternative is to go without. Great Britain ought to have a mortgage. And spending money on educating people and keeping them healthy seems like the best way of ensuring that future generations will be able to keep up the payments.


daniel wainwright said...

Vote Green - For the common good.
The only party with a sensible economic policy.

paul wilks said...

Amen to that thought

saxon said...

You keep switching debt and deficit. Deficit is the amount the debt is *increasing*. Rather than a mortgage, think of it that we've maxxed the credit card, on which we have been paying the minimum payment, and the amount owed is just going up, without any further benefit. Reducing the deficit is like paying off more of the card, rather than just ignoring the bills as they keep coming in. At some point we *will* remove the deficit, at that point we start paying for the things we've already bought, as you suggest, but not before.

Bigpete1981 said...

Hi Dave, love your work.
I totally agree with you, an affordable mortgage is a rare example of good personal debt. Unfortunately Gordon Brown and Ed Balls took out a Northern Rock special back in the day by leveraging massive amounts of government debt onto PFI schemes and welfare commitments that we don't have enough income to cover - hence the defecit...so, we need to spend less or earn more, or maybe do a bit of both.
Congrats on your recent good news btw

Anonymous said...

Saxon is correct. Debt and deficit is different.

daniel wainwright said...

Yes, yes,debt and deficit are different things and Dave's wording was clumsy but that doesn't mean cuts and austerity are the right course of action. See http://falseeconomy.org.uk/cure/the-false-economy-guide-to-the-deficit for detailed explanation in layman's terms :)

Rob said...

I wish I could find the graph someone shared with me a couple of years ago that showed the UK deficit (or debt?) over the centuries. It was flipping massive right at the time we were ruling the waves and never being slaves. So yeah, that made me think I could probably stop worrying about it.

Hamish said...

The problem with analogies is that they encourage people to think of national economies as being like household economies. They really couldn't be more different.


Dave Gorman said...

Genuinely grateful for the pointing out of my debt/deficit confusion. Ta. And Hamish, yes, one of the most annoying things about the past few years has been the conflation of household economics and a country's economics. I'd add that the constant mantra of "these are tough times, we all need to tighten our belts" is unhelpful because it sends a message to the wealthy that they should do the same and it's the last thing we want them to do.

Also, this http://benjaminstudebaker.com/2015/05/02/britain-for-the-love-of-god-please-stop-david-cameron/

George said...

The cuts have not been nearly as bad as the rhetoric about them by a considerable margin. The Conservatives have claimed they've done more than they have while Labour say the cuts have been more harsh than they have been for opposite political reasons.

Government spending has gone up just not by as much as it has historically. On the forecasts for Total Managed Expenditure (Table 4.20) of the OBR report of the last budget, there is still expected to be an increase in TME from 2014/15 (£737.1 billion) to 2019/20 (£797.3 billion).

If inflation were to stay around 1%, this would even be a real terms increase in TME (@1% £737.1 bn becomes £782.45 bn in 2019/20. If inflation is 2% then it is a real terms cut, but a nominal increase.

The average forecast growth in GDP of 2.4% is higher than the growth in TME (1.6%) and if the limit on expansion of expenditure is achieved, then with boosted tax receipts we will be in a position to start getting the national debt to fall.

Remember the national debt has almost doubled in the last five years and interest payments each year are higher than spending on many important government departments.

In my opinion anyone who didn't think there were savings to be made in the massive welfare bill we had in 2010 is living in a fantasy land where there wasn't waste in the transferring of my taxes to people on the benefits bill such as my brother in law who is work shy.

Unless rich pensioners are targeted through means testing I cannot for see too much in the way of further savings in welfare.

I'd also add that the national debt doesn't include the government's liabilities with regards to the various PFIs that Brown and Blair foisted on public services nor does it include public sector pension liabilities. The true debt is much higher.

So if the principle being asked here is should we reduce the deficit and stop inflating the national debt then yes I say we should. Was doing it in 5 years unreasonable? Yes it was and Osborne knows that now which is why it was 8.

Remember the whole principle of the article linked to above is that you run surpluses in the good times and deficits in the bad. Well Brown ran large deficits in the very good times and some entered the recession with a deficit which inflated as tax receipts fell and welfare increased.

Now that the good times are returning according to Kurgmans reasoning we should be running a budget surplus! Yet still the people railing against austerity in the bad times continue to do in the good times which would mean a continuous budget deficit and an ever increasing national debt.

Anonymous said...

You are confusing deficit and debt.

Deficit is when your monthly outgoings are higher than your incomings. So your debt keeps increasing.

Having a mortgage but meeting all payments means you have a budget surplus, but still a debt.

Certain political parties want to eradicate the deficit, so the debt stops increasing. This seems only fair and sensible. Especially for future generations.

There is nothing inherently wrong with borrowing, but you need to be able to meet the repayments.

Dave Gorman said...

@anonymous: I know! If you're going to join a conversation at least check to see where it's got to!

Also: http://m.huffpost.com/uk/entry/2007552

Andy Lock Farm said...

I'd say George has nailed it. One of the reasons it's so hard to choose between the two main parties is that - in terms of austerity - neither of them are offering much difference. Both want you to believe we're in the depths of austerity, but unless you move to Greece these are pretty benign times.

Look at things like the NHS - its overall budget has gone up (not by much, but it's gone up) over the last five years. At the same time the dodgy PFI deals Labour jumped into are costing us around 2 billion a year in interest alone - that would be 20,000 nurses we could afford if they'd not gone to such lengths to put spending 'off the books' under Brown.

I'm no apologist for Cameron, but Milliband claiming Labour has 'learnt its lesson' seems rather disingenuous when the main change seems to be to tax the bankers that they relied so heavily on before. That's not balancing the books, it's just searching for a new cash cow to milk.

Frankly, unless a party can be honest about the economy and come up with a policy that doesn't rob Peter to pay Paul, we're going to be in the doldrums for decades to come. As a nation we should be in it together - public sector, small businesses, big companies, young and old.

The one important thing to do is vote.

GeordieJohn said...

One of the things I like about you Dave, is that when you make a mistake, you admit it. Well done. If only politicians would do the same. Ever thought of standing?

Lisa said...

Both myself and my husband have been made redundant during the current government's cuts, (me while on maternity) going from 37 hours each with chance of overtime,to a zero hours contract each getting 12hrs a week instead, lots of services in our town have been lost due to the severe cuts, (meanwhile our councillors voted to give themselves a payrise, while the rest of council workers have had a pay freeze for the past three years). Politicians are leeches, in the job for the good of themselves and what they can take rather than the greater good and what they can give. Change is needed they can't keep these cuts going.

daniel wainwright said...

A few commenter’s seem to have not bothered educating themselves... See http://falseeconomy.org.uk/cure/the-false-economy-guide-to-the-deficit for detailed explanation in layman's terms :)