1. icarus said...

Putting the deficits into perspective. In previous recessions there was high inflation, which massively increased nominal GDP and thereby reduced the National Debt as a % of GDP. In 1975-83 there was 12% average inflation and during this period nominal GDP grew 150%, reducing the ND from 47% to 30% of GDP (ND calculated here in the way that would have current ND at about 0.7 trillion rather than 1.4 trillion - the latter includes future liabilities like pensions and PFI).

What we have now is a deflationary recession, with nominal GDP falling regularly for the first time since 1931.

The main reason national debt / public deficits have become such a hop topic is the sudden reduction in government revenues over the last two years rather than sudden spending increases. (This is in no way a defence of Brown - his belief in permanent high growth made him think there was no need for prudence.) The bank bailouts have played a big part too.

So increasing government revenue is as important as keeping public expenditure under control.

Here's a snippet from the OECD. ..."among taxes, corporate taxes are the most harmful for growth, followed by personal income taxes, then consumption taxes, with recurrent taxes on immovable property having the least impact (on growth)" Shelving the Conservatives' plans to cut inheritance taxes and looking at property/housing/land as a greater source of taxation (as it is in the US at the state level) would go a long way towards keeping deficits manageable