Ultimately, there are very few definitive rights and wrongs in all this, it's the kind of stuff that politicians and economists spend most of their lives debating. So anything I say should obviously have a huge IMO around it.
Essentially, you're making the case that government borrowing can lead to significant growth in the economy, hence not affecting the debt to GDP ratio significantly.
And that is clearly the case that both Jeremy Corbyn, and Liz Truss were making in their separate ways.
And there's plenty of economists (including obviously those they work with) that will agree with them and you. And there's plenty that won't.
In general at certain times, the above is certainly true.
But to me at least, there's two basic problems with the above in the UK currently.
- The existing huge debt level, making the bond market sceptical of the government planning on borrowing significantly more money, and thus causing borrowing to be more expensive the more they try and borrow.
- The fact that growth is extremely hard to come by in a country where there's already vast amounts of available jobs, but not enough workers to fill them.
ie: Government borrowing money to stimulate jobs and growth at a time of mass unemployment makes sense. Doing it now, to me at least, is throwing money against a wall with little hope of generating growth.
So to me, when I see political debates, I want to see people making the case for particular choices of what they will spend more on, what they will spend less on, or what they will tax more or less. If they are making the case for a larger state overall, that's fine, I probably wouldn't make that case, but there's a perfectly sensible case to be made for more taxation overall and more spending (as in plenty of other European countries), including on plenty of the things that yourself and others on the other thread were talking about.
What I don't like seeing and would never vote for is people just thinking they can magic money out of the bond market to pay for a shopping list.
ie: I'm making the case that significantly more government borrowing at this point in time is a really bad idea.
"Lizz Truss got slammed because she hadn't consulted with bond markets and signalled what she was doing, and it caused a load of feedback loops. The amount of borrowing required to do what she wanted absolutely paled into insignificance vs the covid QE/Furlough spending, all of which made nary a dent on the bond markets. - Fultonius"
Sure, but she tried to borrow more money, after the UK had already borrowed loads in recent years for the Covid / furlough spending. And whilst making lots of noises about tax cuts without making suggestions what they were going to cut spending on. No doubt various other factors were in play, interest rates high by recent standards anyway, new government jitters etc. So maybe it would play out somewhat better if tried now, maybe not. My basic point was just that IMO borrowing significantly more money at this level of debt just isn't a good idea.
"it was an ideologically driven desire to reduce spending - at a time when interest rates were incredibly low - Fultonius"
That I largely agree with - the Tories overall wanted a smaller state, I don't. I do want to see government debt come down. But you're right that the case for more borrowing at that point was certainly a lot stronger than it is now due to interest rates being so low at that time, and the debt not being as high.
"What do you actually mean by this? - Fultonius"
That the UK government and indeed a lot of western governments have been spending way more than they've been taking from tax for a really long time.
With some obvious exceptions in well run countries like Norway, Sweden etc.
And so whilst I'd love for us to be able to move towards something closer to the Scandinavian model of government, we just aren't even remotely in a position to do so currently.
ie:
Sweden's national debt to GDP ratio is around 32%.
Norways is around 44%, but in reality Norway has a sovereign wealth fund that is way bigger than it's debt (it just still has the debt as the bonds often last a really long time).
So those countries are just in a completely different financial situation. Doesn't mean we can't learn things from them though, obviously.
"It is also now a bit out of date. - Fultonius"
Which makes points 4 and 5 on that list out of date. But most of the rest of that list is fine.
In terms of where we are now:
"Debt interest spending reached a post-war high of £111.5 billion in 2022-23, or 4.4 per of GDP, as inflation reached a 40-year high and interest rates surged"
"in 2024-25 we expect debt interest spending to total £89.0 billion. That would represent 7.3 per cent of total public spending"
https://obr.uk/forecasts-in-depth/tax-by-tax-spend-by-spend/debt-interest-central-government-net/
"Actually, it doesn't really. It's been shown to be about £1Tn less than that - Fultonius"
This is where we're really disagreeing.
The Bank of England and the government are not the same thing.
Sure, the BOE can essentially increase the money supply and buy government bonds. And they were right to do so to stop deflation over the past decade until recently. And so sure, a significant percentage of government bonds are held by the BOE.
That's still the government borrowing money to spend it though, so no, I don't agree that you can just pretend 1 trillion of government debt can be ignored. And the BOE is unwinding QE currently to get a grip on inflation, and so those bonds either expire or get sold into the bond market anyway, making them indistinguishable from any other government debt at that point).
But the interaction of monetary policy from the BOE and fiscal policy from the government certainly confuses any discussion around this, that's for sure.
"But while austerity is not popular, nor was the inflation that accompanied financial repression. Independent central banks stabilised inflation expectations in the 1990s and 2000s. That hard-won credibility would vanish if investors thought that helping the government meet its bills was the main job of monetary policy."
https://www.economist.com/finance-and-economics/2021/07/24/lessons-from-britain-on-the-balance-between-monetary-and-fiscal-policy
Bit of background:
https://www.economist.com/finance-and-economics/2023/08/31/how-will-politicians-escape-enormous-public-debts
