Sunday, Jul 12, 2009
Forward to the past?
Observer: Remember, gentlemen, Thatcher's cuts didn't actually work
Interesting article on benefits of public debt. ' "Some people think that the national debt is like a company debt, owed to people outside the company. But most of our national debt is owed to ourselves, ie to UK residents (individuals, pension funds, trusts, banks, charities and so on). Since the government has the power to raise taxes to pay the interest, there can never be a question of default ('the country going bankrupt', as the media like to say)." '
Posted by letthemfall @ 11:07 AM (1785 views) Add Comment
35 Comments
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1. Watp said...
Keegan has always been a looney left economist so no change there. Obviously the solution is for the Government to give all civil servants a 20% pay rise and not just the head of quangos.
2. jonb said...
Except that there is a limit to the amount of tax a government can collect, which is about 60% of income. Any more than that, then people won't bother going out to work.
3. Si1 said...
"This is not to deny that during an eventual recovery the public sector's finances will have to be put on a sounder footing, as Chancellor Kenneth Clarke did in 1993-97 once recovery was firmly established. But we are a long way from that position now, and a Conservative government that thought it had learned the putative lessons of the post-1979 Thatcher period would be in danger of causing untold damage."
amazingly enough, Roger Bootle in the telegraph has said much the same in the telegraph recently:
"In Conservative mythology, the tight Budget of 1981, far from preventing economic recovery, as 364 economists famously argued that it would, actually spurred it on. ". http://www.telegraph.co.uk/finance/comment/rogerbootle/5469884/Lets-have-a-five-year-public-spending-freeze-to-kill-off-big-government.html - Let's have a five-year public spending freeze to kill off big government, Roger Bootle
but it would be good for these debts to be paid off - it is all very well the govt paying bondholders interest, even UK bondholders who then go and spend it in the UK economy - it would be nicer to have a lower tax burden instead for future generations
4. mr g said...
Typical left wing cr*p, from someone who has probably never had a job in the real world.
5. Si1 said...
A related opinion piece in the Telegraph agrees on some points:
"In Conservative mythology, the tight Budget of 1981, far from preventing economic recovery, as 364 economists famously argued that it would, actually spurred it on. "
http://www.telegraph.co.uk/finance/comment/rogerbootle/5469884/Lets-have-a-five-year-public-spending-freeze-to-kill-off-big-government.html
Roger Bootle - Let's have a five-year public spending freeze to kill off big government
6. letthemfall said...
"Typical left wing cr*p.."
Always good to read the more thoughtful and considered comments here.
7. doomwatch said...
What about all the hundreds of our armed forces who lost their lives for oil we still can't afford to extract.
Another great Thatcher policy ?
The champagne is on ice. Won't ne long now.
8. Ulfar said...
There is a limit you feckwits, tax is not infinite, QE is not infinite.
There is always a cost.
9. stillthinking said...
Why didn't he follow up with the obvious conclusion, if we owe the money to ourselves lets simply write it off.
10. enuii said...
Willy is a rather confused economics commentator, if you check out the articles he's written over the last three months he's getting to sound a bit punch drunk with his articles as he swerves around with his articles:-
5 Jul 2009: William Keegan: My memory is that the economy in 1958 did not seem half as bad as it does now.
28 Jun 2009: William Keegan: One has to remember not only the sensational scale of this recession, but also the lost output.
21 Jun 2009: William Keegan: Two decades of deregulation built excessive risk into the system. Mervyn King has got the message, but the banks have not.
14 Jun 2009: William Keegan: With the panic over, now is the time to get worried. The good news is that industrial output is on the rise.
7 Jun 2009: William Keegan: It has always struck me as odd that the British have a reputation for pragmatism.
31 May 2009: William Keegan: The suspicion seems to that the governor, wittingly or not, is assisting the opposition.
24 May 2009: William Keegan: The pace of decline in GDP has a remarkable resemblance to the 1930s Depression.
17 May 2009: William Keegan: There are many other reasons for pessimism and 'the major bad news is still to come'.
10 May 2009: William Keegan: The fact of the matter is that inflation doubled to over 20% in the first Thatcher year.
3 May 2009: William Keegan: What gives me hope is that so many financiers and entrepreneurs seem to be more worried about inflation than depression.
Economists should therefore be viewed as alchemists not economic scientists and economic commentators should be seen as mere spectators swept up in the illusion of the completely implausible backed up by a clever academic argument, and the respectability of a thin veneer of academic rigor.
11. Peter D said...
I suggest he check his details before spouting such dribble. The rates say it all labour left us in same C###p situation as they are now and it will be hard to balance the books again. Was 1997 again another labour scorched earth policy
Year Rate
2006 2.30%
2005 2.10%
2004 1.30%
2003 1.40%
2002 1.30%
2001 1.20%
2000 0.80%
1999 1.30%
1998 1.60%
1997 1.80%
1996 2.50%
1995 2.60%
1994 2.00%
1993 2.50%
1992 4.30%
1991 7.50%
1990 7.00%
1989 5.20%
1988 4.90%
1987 4.20%
1986 3.40%
1985 6.10%
1984 5.00%
1983 4.60%
1982 8.60%
1981 11.90%
1980 18.00%
1979 13.40%
1978 8.30%
1977 15.80%
1976 16.50%
1975 24.20%
1974 16.00%
12. Rabbitman said...
I struggle to understand why commentators/economists can't focus on the simple things ... like.
Whats going on, how did we get there, how do we get out of the mess.
From where I sit, since around the year 2000 the economies of certainly the UK and the US became increasingly consumer spending driven. The consumers used debt to fund that spending, fueled by the low cost of borrowing. Financial companies leveraged massively, big profits, but only while various bubbles like housing kept inflating, driven again by the low cost of borrowing. Governments encouraged the spending by keeping the cost of spending low, in order to keep the 'feel good factor going'. The situation was never sustainable. The people behind it must have know that ... even I managed to figure it out. People like Peter Schiff shouted about it two years before it all collapsed and were ignored.
So where now? Has anyone noticed that the Euro, Dollar and Sterling are all into massively printing money almost synchronously. If they all print proportionally the same amount then the exchange rates aren't affected. All that happens is that over time you get increased inflation. I still don't understand how the governments think that they can print their way out of debt without damaging their currencies and economies in the longer term.
I guess the only thing I can say about the future in financial terms is that its going to be a lot different than the past. Its no wonder China are starting to look very uncomfortable with two trillion dollars of reserve cash that looks like its going to rapidly lose its value as Ben Bernanke speeds up the printing presses.
13. uncle tom said...
This is a rubbish article from an incompetant journalist; our time would be wasted trying to make sense of it..
..move on.
14. Nickb said...
Good article - it seems no-one here has valid points to raise against it, all I can see is negation signs. Cuts engender expenditure somewhere else in the system - picking up the pieces as it were. Which is why Thatcher never was able to reduce government expenditure overall; they shifted productive expenditure into expenditure caused by the social mess the cuts created.
15. letthemfall said...
ennui:
I admire your assiduous collecting of quotes but I'm not sure of the point you're making. I agree that many economists' and commentators' opinions are of questionable value, but that does not mean to say all of them are hopeless.
uncle tom:
It is not a rubbish article and he is not an incompetent journalist. What you really mean is you disagree profoundly with the content. Like all articles, the author holds a view. But it's backed up by argument.
16. nubbers said...
Well, I've tried to think about what he has to say and I have tried to come up with something that sound thoughful and considered, but my mind just keeps telling me that I can't believe any journalist who wears such a rediculous moustache.
17. wdbeast said...
nubbers@9 - I agree
He reminds me of someone.
Lech Walesa?
Joseph Stalin?
Horatio Kitchener?
Or maybe Thomas Magnum!
18. enuii said...
letthemfall:
The point I was alluding to is that we are in uncharted waters without a rudder economically and economists like the author himself are probably struggling to come to terms with this in relation to the perceived wisdom of their academic training and their profession.
Hence the nice quotes like '1958 did not seem half as bad as it does now', 'one has to remember not only the sensational scale of this recession' and 'Thatcher's cuts didn't actually work'.
Stringing this all together indicates that whether you lean to the left or the right because the rudder is broken it will make not a shred of difference to the final outcome i.e. there is no magic cure for the economic predicament that the UK faces.
19. letthemfall said...
ennui:
I suppose one has to grant journalists their memorable phrases, but I think he offers a different and interesting perspective on public debt. But I agree with you about there being no magic cure.
nubbers:
I have to concede your point about the moustache. Use one the image blockers.
20. phdinbubbles said...
Interesting to see a different point of view, however this job ad from the guardian leads me to to a different conclusion:
Think Family.
Think Manchester.
Salary: £57,744
Ref: SRS/HOSTF
This remarkable city is made up of remarkable families. And it's clear to us that every move we make to improve the lives of this city's children and young people affects their families - and vice versa. So, in this role, you'll work with partners across and beyond the Council to bring about radical change, delivering services in a family and community context and improving the way we work with parents and carers. The result will be better outcomes and stronger families, as well as innovative, clearer and focused support for those most in need.
Of graduate calibre with a recognised qualification in a relevant discipline, you'll need substantial senior management experience in this field and a track record of influencing change and managing people and budgets successfully. A particular focus on building engagement with families in disadvantaged communities is essential and your flair for partnership working should be matched by a solid grasp of all current issues in a multicultural, urban environment. Drive, tenacity, team spirit and communication will be critical to your success.
21. cyril said...
I can see that government bonds might be money owed to 'ourselves' but it's still got to be paid back. Unless you prefer a total collapse of civil society.
22. Heyak Von-hazlet-mises said...
Debt, ultimately, is owed to those who print money. These are, the central banks that print money from thin air and charge interest to the public via income tax, and commercial banks that operate a fractional reserve system, printing money to loan at interest to the general public and corporations. Most of the central banks are owned by the corporate banks,. So, who are we in debt with? Hmm, Goldman/Government Sach's, et al.
23. Muffy said...
Surely the largest amount of the money we owe is to foreign creditor nations, not to ourselves? We're paying £600m a day in interest on our debt, if we were paying most of that amount daily to ourselves we'd be pretty happy. So who is it going to?
24. mr g said...
@3 said "Always good to read the more thoughtful and considered comments here".
Seems to me that if you don't have a left wing outlook on life you are unwelcome on this site.
However, with regard to my original comment, if you would prefer it worded in a more refined, thoughtful and considered manner:
Most writers for the Observer / Guardian live in a rareified ivory tower rendering them incapable of understanding the real world and the concerns of real people.
25. debtfree said...
@1 - I think we pay about 65% tax already.
petrol, cigarettes, vat on a meal out. council tax, car tax etc etc
26. Soupdragon said...
debtfree, yes there are a lot of individual taxes, but at least those taxes are optional, you don't have to smoke, drink, own a car. I don't own a car or smoke so why should I pay for those who do?
The alternative is the system of Denmark, where spent time as a student, where the top rate of tax is 63% and this kicks in at around 300,000Kr which is about £30,000. So over 50% of the working population pay the top band income tax. Everything works fine, great public services, same things that everything people want here but are too stingy to pay for.
27. goweresque said...
Articles like this make me despair for this country...........there appears to be an idea that debt (whether public or private) can go up indefinitely, and such trends will never reverse. I'm afraid eventually all borrowers whose debts always rise and never fall reach the point of no return where no one will lend them any more money, and the whole edifice falls. Unless we turn things around, we are on that road to ruin. Exactly when, who knows, but when the total UK debt is 5 times our GDP and rising, ruin cannot be a million miles away.
28. dbc reed said...
The argument needs to take into account that if you cut public sector pay, you are reducing demand,so if you want to keep more of the private sector in work you are going to have augment demand somehow, else private sector work goes too.Then the public sector pays a lot of tax (without some of the opportunities to avoid it that often come up in the private sector) so private sector tax contributions will have to go up to make up the shortfall.
The Guv is not a stand-alone business: if it gets rid of people, it has to pick up the tab for their support,with a reduced amount of revenue from an economy with lower demand..
29. andrew said...
mr g,
"Seems to me that if you don't have a left wing outlook on life you are unwelcome on this site"
Don't worry, most posters are still in the nasty Tory party, it doesn't matter who you vote for, new Labour is really okay, don't trust the Tories (but somehow it is okay to leave Labour in power), don't criticise the public sector and owning up to being right wing is just "uncool" so never admit to it frame of mind.
letthemfall was probably stung in the Thatcher years and now is worried that the same thing would happen again if the Labour gravy train came to an end.
30. techieman said...
"mr g,
"Seems to me that if you don't have a left wing outlook on life you are unwelcome on this site"
Not necessarily. Even if thats true there are some issues on which a "left wing" argument should prevail and some where a "right wing" one should prevail. Which are which? Therein lies the debate! We would all like everyone to be milliohairs and afford everthing they could and have no haves and have nots in society, but that dont work and the problem is who else is gonna pay for it? Havent read the article (actually not sure i have the time to) so cant comment.
31. letthemfall said...
mr g: I think most contributors are welcome here, regardless of political views, though discussion rather than posturing or ranting is preferable, even if the odd rant makes us feel better.
Unfortunately your remark that Guardian writers live in ivory towers is not argument but your prejudice. It is a pity that these things cannot be discussed without resort to immature left vs right accusations and the sort of jeering that andrew routinely comes out with.
See dbc reed's comment as an example of a sensible contribution.
32. mr g said...
letthemfall @21
Agreed, dbc reed makes a sensible contribution but then again so do comments 19 and 20.
In addition, I must say that I agree with your sentiments when you say "mr g: I think most contributors are welcome here, regardless of political views, though discussion rather than posturing or ranting is preferable, even if the odd rant makes us feel better"!
33. letthemfall said...
soupdragon:
Yes, the contrast with Scandinavian countries is interesting. Taxes are high there but so are standards of living. In the UK taxes are seen by many as a drain on their income rather than the cost of a fair and well provisioned society. The beer is very expensive of course, but as it's lager perhaps that doesn't matter so much.
34. Mr G said...
@33 said "The beer is very expensive of course, but as it's lager perhaps that doesn't matter so much."
That is the most sensible pronouncement I have ever read on this site!
35. mr g said...
@33 said: "The beer is very expensive of course, but as it's lager perhaps that doesn't matter so much."
Those are the wisest words ever written on this site!