Tuesday, September 15, 2009
On Investing or Cutting
From 1750 to 1870, Britain won wars, assembled an astonishing navy, built an empire and launched the Industrial Revolution to become the envy of Europe, yet the national debt was consistently above 80% of GDP. Nobody cared. High national debt was a precondition for winning two world wars in the 20th century. Periods when the over-riding preoccupation has been lowering the national debt have coincided with industrial, economic and strategic decline. So it will again.
Furthermore, as Julian Le Grand pointed out on radio 4 yesterday, other countries, like Japan and Germany have higher levels of debt than us and are not suffering nervous breakdowns over it. Again, I'm like the rest of the country, baffled. We are told we need to inject money, to invest, to revive the economy, yet another school of opinion says 'No, no! don't invest, save save!'
This provokes the reaction from the former group: 'Oh my God! You'll crush the fragile flower of recovery, just beginning to break through the surface of the recession.' to which the latter group scream:'But if we don't install a programme of cuts the international bond market will refuse to lend us any more money, except at even more extortionate rates!'
I suspect, both sides of the argument are exaggerated and that, as before we'll muddle our way through it as we always seem to. It was interesting though that the first definitive staement of Brown's new line on expenditure should have been spelt out by Mandelson. I suspect, Number 10 have recognised- especially since that damning poll in the ST, revealing half of respondents thinking nearly anyone could do a better job than Gordon-that the PM is now a liability and are pushing out the silver tongued 'Deputy PM', Mandelson, to deliver the messages. Given that he has never been especially convincing at such a function, this smacks just a litle of desperation.
I do not think Brown is a good leader, in fact I think he is piss poor and knew this, thats why he did a deal with Blair, now we will have perhaps thirty years to ponder how the hell we will win again. because I cannot see people trusting labour for a long time.
I agree this debt is not that serious, but Brown has actually made it serious by not telling people grow up for god sake it's nothing.
To day he smiled and said we are doing something on banking bonuses, he said we are taxing them at 50% all round me were groans.
This belief is probably most marked among the international bond markets, which is why there is such paranoia about whether they will fund our debts - a wholly different scenario from the years before 1870, or at least 1850, when rich people kept their money in "Consols" or "Funds" - i.e. bonds on the Consolidated Fund - rather than in the stock market. Now they are dominated by banks, who have strict rules on where they can and can't put their money and have tempting alternatives in Germany, China and America.
On the whole, I would not be unduly worried about a National Debt of 80% - what worries me is a) the speed at which it is being added to at present suggests if something is not done soon it will end up at way over 100% of GDP and b) the fact that nobody in Labour until now seemed to grasp that a PSBR of 15% of GDP was simply unsustainable.
Moreover, there is definitely a concern about several other fiscal measures - printing money for instance, or insisting that banks lend more while at the same time insisting they improve their capital ratio, which is almost impossible. The debate on the National Debt might therefore be partly a symptom of worries about a deeper malaise.
Sorry to post such a long reply, hope you find it interesting.
Links to this post: