BELIEVING IS SEEINGBELIEVING IS SEEING

the debt crisis as just another story – or why are we prey to a single narrative?

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Our level of debt is higher than it has ever been

Debt interest repayments are higher than they have ever been

National debt, fiscal deficits and debt interest repayments are a new phenomena

The UK government is broke The debt is unmanageable

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“…the main arguments are not about the existence of the deficit problem, but primarily about the balance of tax changes versus spending cuts and the timing…”

Stephanie Harris Head of Accountability, BBC News

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CURRENT DEBT – GDP RATIO

....about 63%(we owe about two-thirds of what we are

worth – like having a mortgage)

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...and what does the Maastricht Treaty allow?

(i.e. What did Margaret Thatcher sign up to?)

......a debt limit of .............60%

.....but how does that stand historically....?

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Britain's Debt / National Income Ratio, 1691-1990Year Percentage Year Percentage1688/91 6 1901 431759 137 1911 391801 197 1921 1791811 202 1931 2071821 288 1938 1711831 231 1941 1541841 175 1945 261)1851 150 1950 240) look!1861 123 1960 133)1871 86 1970 821881 73 1980 521891 53 1990 35

Source: Mitchell (1990). 1980 and 1990: Central Statistical Office (1992)Red = period building the Welfare State

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....or look at it another way

Our current debt is at an historically low level

Our current debt is at an historically low level

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“....but cheap American money in the post-war period,” you say? …Government has cheap money now – interest rates are low and Government owns banks

“but that was long-term debt,” you say. …So is ours today – 13-14 years. And we only paid off the US loans from WW2 in 2006!

“....but that post-war period, too, was a time of great austerity,” you say? …But we were building a welfare state then, free universal education, expanding the university sector– right now we are dismantling the welfare state and abandoning state funding of higher education

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....and another way to see debt...looks pretty random, doesn’t it?

Source: CIA World Factbook(Notice: Canada went through extreme austerity measures only recently and has a higher debt than the UK!)

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A Government (fiscal )deficit even when the economy is performing to capacity i.e. incomings and outgoings – e.g. Public sector costs + servicing the debt against tax receipts, proceeds from growth and exports.

The CG says this should be 80% cuts (one side) and 20% tax receipts (other side). Why? Why not 50/50...20/80...0/100?

Isn’t this a political choice?

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Debt Interest Payments

1989 1995 2006 2011

Debt (£bn) 18.5 23.5 26.2 43.3

% of GDP 3.5 3.2 1.97 2.84

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Our debt interest payments are not even as high as the last year of Thatcher’s Government!!!!

Source: www.ukpublicspending.co.uk

Conservative Government

We borrowed our way out of debt under Thatcher!! 12

Source: Public Finances Databank, ONS

Tax as a proportion of GDP (2007 - %)

EU 16 40.4

Austria 41.9

Belgium 44.4

Czech Rep 36.4

Denmark 48.9

Finland 43.0

France 43.6

Germany 36.2

Hungary 39.3

Iceland 41.4

Italy 43.3

Luxembourg 36.9

Norway 43.4

Spain 37.2

Sweden 48.2

UK 36.6

But what is more structural than the tax take?

Is this where the deficit is??

Source - Eurostat newsrelease – June 22nd 2009 13

What kind of society do we want when the economy is performing to capacity? If we are cutting the ‘structural’ elements of debt that means we don’t plan to bring them back. What do we want: Free health care? Winter fuel allowance? Good schools? Historically low taxes on the wealthy? A well run railway? Child benefit? Full employment?

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GDP = Consumer spending + Business Investment + Government Spending + International Trade income

It’s an estimate, based on surveys of < 2% of UK businesses. So it’s a guide a rough indicator – not a fact

And GDP is multiplied by the Velocity of money - (how many times a £ is spent in 1 year). Increase V

and you increase GDP. But banks have RESTRICTED the flow of money – so artificially dampening GDP.

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UK net debt is £903 bn Excluding Financial

sector intervention, debt is £771 bn*

Or 54% of GDP!Source: Office National Statistics (updated June 18,

2010)

*This includes £100bn+ of the banks’ debts that is now UK Government debt

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This is investment – we have bought shares in banks. Why count it as debt?

In the long term how much will we recoup from these investments?

more importantly…. If we can invest in banks and make

public sector pay – why can’t we invest in public sector and make banks pay?

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Increasing or reducing the supply of money into the economy through household and business lending – i.e. Manipulating the Velocity of money

EXAMPLE: housing equity renewal increased from £4bn in 2001 to peak at almost £18bn in 2004, an annual injection of between £10-14bn into the system during the 2000s. Since 2008, as a result of the credit crunch, banks have pulled £8bn per year out of the system and made loans expensive (i.e. To raise the price of money – their main commodity)

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Financial services share of UK GDP rose from 5.7% in 1995 to 7.6% in 2007

The manufacturing sector share of UK GDP has fallen by over a third from 20.3% in 1997 to 12.6% in 2007

Source: International Financial Services, London Report 2008

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Growth ratesThe financial sector and banks in recent years also suppressed growth– compared to 6-10% growth of

‘tiger economies’ 21

Private sector debt is about 4-5 times larger than public debt and that is sustainable

Anyway, it’s not debt that matters – but our capacity to pay it (like a mortgage). And our capacity is historically high, because: Increased wealth and income inequality (see the Gini co-

efficient) UK’s long-term debt repayments (14 years) Government access to cheap money (we own two banks!) –

Doesn’t that make the value of debt historically low?

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The Gini Coefficient – the most disgraceful curve of allLow = lower wealth disparities; High = greater inequality

Public sector compensates for wealth inequalities – so why are we not EXPANDING the public sector??? 23

Notice that the Gini Coefficient has been rising (more wealth concentrated on the wealthy) while higher rate taxes have been reduced (the wealthy taxed less). So the money to pay for public sector has shrunk. Where can it come from?

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Public utilities privatised - prisons, more and more schools, many health services, council services etc

Around 20% public current expenditure outsourced to private sector (£124bn) with more to come as ‘commissioning’ steps up;

Around 20% public sector employment transfer to private sector over recent 2 decades

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YES…..…BUT……..

Not between the public and private sectors

Between the financial and manufacturing sectors

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The UK is not broke – “there’s no money left!” is economically illiterate. We have the 6th highest GDP in the world. What about our assets in bank holdings?

Why pay off 100% of our deficit in 4 years, when our debt is historically low and we have 14 years to repay our borrowing?

But national debt is never paid off – its part of the dynamic of a healthy economy. YOU may pay off your mortgage – but the next owners bring another one – your house ALWAYS has debt

Why not explore options to meet debt payments and reduce the deficit? i.e. pay more when we have growth, reschedule loans in 10 years, increase wealth taxes, public enterprise.

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National debt? NO

Current account deficit? Depends on

your values - it’s political

Economic governance? YES

Employment? YES

Democracy and public debate? YES

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"Thinking's a dizzy business, a matter of catching as many of those foggy glimpses as you can and fitting them together the best you can. That's why people hang on so tight to their beliefs and opinions; because, compared to the haphazard way in which they are arrived at, even the goofiest opinion seems wonderfully clear, sane, and self-evident.”

Dashiel Hammett

...so...why are we prey to single narratives?

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