back to article NEVER MIND the B*LLOCKS Osbo peddles, deficits don't really matter

What with another budget just coming up, to correct the one that chancellor of the exchequer George Osborne kidded everyone with before the election, it might be time to answer the question of whether deficits really matter? For Osborne is most certainly going to continue shouting that they do and, equally certainly, everyone …

  1. All names Taken
    Paris Hilton

    An excellent example ...

    ... of why UKs civil servants en masse should approach Guvmint and say things like:

    We know public finances are bad and don't want to heap stuff on top of that. Here is a restructuring plan to save 20% of total cost without adversely affecting service levels. The proposed structure ensures frontline delivery of services with modest increases for those with income levels below national average-local average and loss of many midmanagement positions with income levels at the highest level reduced by up to 50%. There is also an additional governing factor in which civil servant incomes whether direct or indirect (that is a "private" company wholly owned by the state or state apparatus) will never ever be paid more than than the Minister for the Regions. We fully acknowledge that the Prime Minister should have lead salary in the public employee-publicly paid sector even with the mish-mash of psuedo companies now in existence??

    Huh? Huh? Huh?

    PS (edit): only the finance sector seems to get the same level of public funds chucked at it on a regular basis. A rule in the private sector seems to be: can't manage your income-expenditure and owe the bank lots of dosh then it is Time for closure and bankruptcy?

    And what private sector company goes into huge deficits with big wage rises all round, improved terms and conditions of employment matched by huge reduction in services and service levels?

    1. Anonymous Coward
      Anonymous Coward

      Re: An excellent example ...

      "There is also an additional governing factor in which civil servant incomes whether direct or indirect (<snip>) will never ever be paid more than than the Minister for the Regions."

      Well, if you want monkeys running the government and civil service, pay peanuts. There's a competitive jobs market out there, talent goes where the money is.

      A population gets the government it votes and pays for. If you don't like it, complain to them. They're the ones who are ultimately responsible.

      And no, I'm not a civil servant and I'm definitely not a politician.

      1. Peter Johnston 1

        Re: An excellent example ...

        Or you could pay peanuts, get monkeys, then use this as an argument for abolishing the service and putting it out to the private sector.

        The real problem, however, is that the civil service isn't a meritocracy. You get promoted on length of service, not ability. And sacking people for poor performance - well that is practically impossible. So you get monkeys at the top, even though you pay lots of peanuts.

        And that's why you should put it out to the private sector!

      2. LucreLout Silver badge

        Re: An excellent example ...

        if you want monkeys running the government and civil service, pay peanuts.

        The problem, of course, is that every year we pay still more money, and all we achieve is making the same monkeys we already have more expensive. When does the monkey replacement program begin?

        Public servants, in real terms, cost very nearly double what they did just 20 years ago. And we just don't have anything to show for that. Productivity is worse than ever, and debt is reaching unsustainable levels.

    2. streaky Silver badge

      Re: An excellent example ...

      can't manage your income-expenditure and owe the bank lots of dosh then it is Time for closure and bankruptcy

      Uhm. No?

      That's time for bankruptcy protection. Bankruptcy is when even your creditors taking a haircut and maybe shaving some staff and closing a few stores won't help, your business will be a steaming pile of indebted brown stuff with no future.

      Lets be clear about something here - there's no equivalent of bankruptcy for states. You can't fire all the citizens in a country then wind-up that country.

      So the thing states always get to is some form of bankruptcy protection. They can still get loans even when they're essentially insolvent - though frankly I've never hear of a totally insolvent country, there's always assets somewhere and always cogs that can crank and produce new wealth.

      That all being said there's no evidence that countries like the US and UK are actually at the point of anything like an unmanageable level of debt - if the bond markets and currency markets came under attack they may be but you'd loose a lot of other countries first, and it'd be in no interest of the bond/currency markets to do this.

      1. Chris Miller

        Re: An excellent example ...

        States may not go bankrupt, but currently hospitals in Athens are running out of painkillers and money to pay nurses. We may be about to see how close they can get to bankruptcy.

        Sadly for Syriza, promising the electorate that 2+2=5 doesn't alter the rules of (financial) arithmetic.

        1. David L Webb

          Re: An excellent example ...

          "States may not go bankrupt, but currently hospitals in Athens are running out of painkillers and money to pay nurses. We may be about to see how close they can get to bankruptcy."

          States often default on their debts which is as near to bankrupcy as you can get for a state. However in the current world of fiat currencies this is pretty much only ever necessary if the debts are in a currency which the state doesn't have full control of. Hence Greece is in trouble because it doesn't control the Euro. The UK and USA in contrast have full control over their currencies and their debts are overwhelmingly denominated in those currencies. Taken in its totality the Eurozone is in a similar position to the UK and US. However in the UK and US mechanisms are in place for fiscal transfers which mean that imbalances between different states or the constituant countries of the UK are evened out. Whereas in the Eurozone the northern nations in particular Germany are reluctant to see permanent fiscal transfers to nations such as Greece.

          1. Peter Johnston 1

            Re: An excellent example ...

            We, across Europe, pay 10 times the world average for healthcare. Yet lifespans are less than a year longer.

            We really should be framing this around why we are not achieving ten times better than average healthcare for the money we spend, either improving results or reducing spend, not worrying about a few nurses and paractemol.

            1. Jason 24

              Re: An excellent example ...

              "We, across Europe, pay 10 times the world average for healthcare. Yet lifespans are less than a year longer."

              Is that possibly a case of hitting the point of diminishing returns? We weren't meant to live forever.

        2. streaky Silver badge

          Re: An excellent example ...

          currently hospitals in Athens are running out of painkillers and money to pay nurses

          That's because of German-imposed spending cuts, not because the country is actually out of cash. Not for nothing but I don't understand how what you're saying if true doesn't start a civil war but I better stop before I get labelled an extremist by our fascist overlord awesome Tory government.

  2. WonkoTheSane
    Facepalm

    I have my suspicions...

    During the election, CallMeDave pledged to bring in a law to lock the rates of VAT, NI, & Income Tax "within 100 days".

    This of course gives him 99 days to raise those rates without breaking his promise. Now Osborne has announced a "surprise" budget for Jul 8. Hmm.

    (El Reg needs a tinfoil hattery icon, but this will have to do for now.)

    1. Anonymous Coward
      Anonymous Coward

      Re: I have my suspicions...

      Where's your wheatgerm bowl?!?

    2. BoldMan

      Re: I have my suspicions...

      Which was a totally spurious gesture as the Gov is the lawmaking body so making a law that only affects itself is pointless when at some point in the future the Gov just abolishes that law when it decides it wants to do what the law forbids.

  3. S4qFBxkFFg
    Trollface

    Super!

    "At which point it matters whether you're borrowing in your own currency (whether from foreigners or not) or borrowing in another currency. Because if it's your own you can just print more. If someone else owns the printing press you can't."

    Given that North Korea may be doing exactly that ("super"dollars), what's to stop Greece printing "supereuros"?

    If they didn't get too crazy with it, would we even find out?

    1. John Sager

      Re: Super!

      'Given that North Korea may be doing exactly that ("super"dollars), what's to stop Greece printing "supereuros"?'

      I think that would lead to that Wehrmacht paratroops thing again.

      1. Anonymous Coward
        Anonymous Coward

        Re: Super!

        "I think that would lead to that Wehrmacht paratroops thing again."

        It hopefully won't come to that.

        But this might be worth a small investment at the bookies: you'd get good odds on Greece having to give the Germans one or two of their Mediterranean islands to settle the bills.

        In fact there's probably a few Greeks who would welcome a government as good as the German one; why not simply contract them into the job?

    2. bazza Silver badge

      Re: Super!

      I vaguely remember a story about how the allies in WW2 planned on printing millions of forged Reichsmarks and distributing them from bombers, to upset the German economy. Or was it the other way around? Or both!

      1. Arthur the cat Silver badge

        Re: Super!

        You're probably thinking of Operation Bernhard. To quote Wikipedia

        Operation Bernhard was the codename of a secret Nazi plan devised during the Second World War by the RSHA and the SS to destabilise the British economy via economic warfare by flooding the global economy and the British Empire with forged Bank of England £5, £10, £20, and £50 notes.

        1. bazza Silver badge

          Re: Super!

          "You're probably thinking of Operation Bernhard."

          That's the one. Your Google-fu is superior to mine...

        2. Colin Ritchie
          Windows

          Re: Super!

          According to my old History master, the British general public handed in bundles of cash, large enough to choke a horse, when the money was experimentally dropped on them. Some leaving names and addresses at the Police stations in hope of an eventual reward.

          Tell that to the youth of today, they won't believe you!

        3. Kubla Cant Silver badge

          Re: Super!

          forged Bank of England £5, £10, £20, and £50 notes

          I hardly like to contradict Wikipedia, but I should have thought that £10, £20, and £50 notes were so rare during the war that it would be hard to "flood" the economy with them. The average wage in 1942 was £6 a week.

      2. Chris G Silver badge

        Re: Super!

        Pretty sure it was both and Sterling too 'Operation Bernhardt', apparently the best ever forgeries of British notes and the reason why the old white fivers were taken out of circulation.

      3. This post has been deleted by its author

    3. Anonymous Coward
      Anonymous Coward

      Re: Super!

      The trouble with that approach is that the vast majority of all currencies are never printed. Most of all currencies reside in the computers owned and operated by the banksters. In other words, you cannot counterfeit your way out of debt any longer, assuming you have a very large debt. Greece owes nearly $1 trillion on that shiny new bridge they built across the Gulf of Corinth.

  4. John H Woods Silver badge

    Impulsive voting

    Voting seems to me to largely a matter of feeling rather than thinking. I came across numerous people before the UK general election who supported a continued Coalition or a Conservative government on the basis that "there's no doubt that we are [as a country] a lot better off now" Most of them felt that this statement was, in effect, its own evidence.

    Those few who felt any need for actual evidence would talk about "The National Debt", and how Labour governments borrowed recklessly whilst the Coalition had been more prudent and circumspect. Pointing out to these people that the coalition had actually increased the national debt more in their term of office than the previous three administrations combined was met with general disbelief, whether I quoted official statistics or those well known left-biased media the Financial Times and the Spectator.

    I made it clear when discussing with these people that I didn't think the level of national debt, either in absolute terms or as %GDP, was the sole (or even a particularly important) indicator of the health of an economy, and that other arguments could be made in support of an argument that the Coalition had been more economically prudent. Very few people took me up on that, most preferred to stick to their guns by simply disbelieving my "claim" that the national debt had increased.

    And this is the essential problem, not just with voters, but the people they vote in. Tribal allegiances appear to be more important than actually thinking about things, examining evidence and coming to conclusions. I would actually have preferred a totally hung parliament, so that things had to be achieved by people actually discussing things rather than the shameful school-playground-level tit-for-tat shouting show that seems to pass for sensible debate in the UK Parliament.

    In this context, of course, it is easy to see why both parties prefer to conflate the two points that Tim has distinguished in this article. Labour won't come right out and say that they prefer a big state; that it would be better for the country and here are the reasons. Hell, they didn't even seem comfortable proposing anything other than a slightly milder austerity. (I bet most voters felt, bloody hell, if we have to have austerity, we might as well have the guys we can rely upon to give it to us!) The Conservatives, similarly, prefer not to say they advocate a small state, but to present it as the only reasonable choice for a functioning economy and pretty much to imply that anyone who disagrees with them is irresponsible and/or stupid.

    The voters, therefore, catch on to simplistic arguments (which they mostly do not even understand) that show them that the political party with which they disagree must be composed of stupid, if not downright evil, people, rather than people who hold different views with whom it might be possible to come to some mutual agreements on at least some subjects. So we swing constantly between two suboptimal compositions of parliament with apparently no way out of this cycle.

    1. Anonymous Coward
      Anonymous Coward

      Re: Impulsive voting

      > "Voting seems to me to largely a matter of feeling rather than thinking."

      Ah, democracy, the worst way of running a country. Not as bad as all the others though. (Winston Churchill said something like that...).

      Some of the contentious referenda that have occured in recent times, e.g. Danish vote for the Lisbon treaty, absolutely stink. The first was was a no, difference of a mere 5000 people either way. They held it again, and this time it went the other way, by about 5000 people. That's an absolutely ridiculous basis for a decision. The politicians behind it should be ashamed of themselves.

      If you have too much democracy you end up with Switzerland.

      1. Anonymous Coward
        Anonymous Coward

        Re: Impulsive voting

        Downvoted because I'm in Switzerland, and I'd fight to protect its democracy from the likes of you.

    2. Doctor Syntax Silver badge

      Re: Impulsive voting

      Nice rant, John, but it does ignore the fact that Brown (& like-minded finance ministers elsewhere) managed to tax the future to a considerable degree & it's going to take more than one parliament to unpick the damage.

    3. John Sager

      Re: Impulsive voting

      @John Woods: Your implicit assumption, from your last sentence, seems to be that a 'centrist' position is in some sense optimal, i.e. if you have some arbitrary mix of 'small-state' and 'big-state' policies that a coalition government can find agreement on, then it will be better than either of the two 'pure' positions. This sounds awfully much like the sort of compromises that masqerade as policies from Brussels. Personally, I'm happy that we've got a Conservative government without the pains of trying to find common ground in a coalition. The small majority will ameliorate the worst excesses, though that might not stop Theresa May (yet another Home Sec captured by the system). Labour were never going to get an overall majority anyway so we would have had all the hassles of a coalition with, almost certainly, lots more internal fractiousness than ever the ConLibs had.

      1. DocJames

        Re: Impulsive voting

        Your implicit assumption, from your last sentence, seems to be that a 'centrist' position is in some sense optimal

        I read it differently: his implicit assumption was that in a coalition the need to gain support through debate means higher standard of legislation than the whipped lobby fodder of majority governments under FPTP provides. (My implicit assumptions about party politics may be evident in that statement)

        1. Alan Brown Silver badge

          Re: Impulsive voting

          > his implicit assumption was that in a coalition the need to gain support through debate means higher standard of legislation than the whipped lobby fodder of majority governments under FPTP provides.

          I tend to agree. The most dangerous time for any country is if any given party has such a substantial governmental majority that it can ram anything through unchecked and such times are when the most extreme ideologically-driven laws get passed.

          Laws that require broad cross-party agreements tend to be better thought-out.

        2. John H Woods Silver badge

          Re: Impulsive voting

          @DocJames,

          That is the meaning I intended --- no so much a mix of right and left leading to a "centrist" position, as John Sager suggested, but a scenario where one does not really define one's views by picking part of this 'left-right spectrum'. For instance, I'm a pretty committed environmentalist but despite (actually I would say because of) that, I am extremely pro-nuclear. I'm probably left-of-centre regarding healthcare availibility and educational opportunities, but in other respects I could be considered a right-wing small-state libertarian. I'm also an ardent supporter of British armed forces and believe the UK should project its military power overseas whenever it is justified (not too many of my Guardian reading friends would agree, I suspect).

          In the article, Tim is separating the big-state/small-state argument from the austerity/stimulus argument, and this is an approach I find extremely encouraging: having a situation where you can evaluate evidence and engage in constructive and considered debate without the "All of those people just want to destroy our country" vs "All of those people just want to kill the poor" shouting which just generates a lot more heat than light.

    4. Alan Brown Silver badge

      Re: Impulsive voting

      > I came across numerous people before the UK general election who supported a continued Coalition or a Conservative government on the basis that "there's no doubt that we are [as a country] a lot better off now"

      This is the reason a lot of people continued to vote for that nice Mr Hitler too. If there's a global economic upturn then national govts will always try to blag the credit for it.

    5. I ain't Spartacus Gold badge

      Re: Impulsive voting

      Pointing out to these people that the coalition had actually increased the national debt more in their term of office than the previous three administrations combined was met with general disbelief

      This is a pretty dishonest argument though, in that the trajectory of national debt was set during the administration of the previous government - and short of insane levels of cuts, as were enforced on Greece with utterly disastrous (and utterly predictable) results the coalition was only ever going to have a limited effect on the total debt.

      On the other hand though, many people don't seem to get the difference between debt and deficit. Including some politicians seemingly. Many people when asked at the beginning of the last government apparently believed that Osborne had pledged to eliminate the national debt by the end of this Parliament, not the deficit. But I am suspicious of those kind of surveys, like when the Daily Mail tries to ramp up the shock with 20% of teenagers don't know who Adolf Hitler was / can't point out the UK on a globe, etc. Whereas I suspect the real meaning of those surveys is that 20% of people couldn't be bothered to answer a silly question.

      I slightly disagree with Tim on the point of the article though. That report with the Excel spreadsheet error still seemed to show a correlation between economies with lower growth and those with debt-to-GDP ratios over about 90%. Although correlation is not causation - so it could as well be said that dysfunctional economies run up large debts.

      But trajectory matters. Running deficits around 10% of GDP is dangerous. That kind of money mounts up really quickly. When the Conservatives had to re-write their entire program for government in 2009 - they had no way to predict that interest rates would still be so ridiculously low 6 years later. I mean there was a good chance that they wouldn't be shooting up, as growth and inflatoin might be expected to be rare commodities after such a nasty recession. But it would he horribly reckless to not worry about interest rates on government debt jumping - and it could then start getting seriously expensive to service the national debt. Congratulations are due to the Treasury under Gordon Brown here, for pushing out our government debt maturities to much longer periods than any other country during the last boom. Thus locking in the low interest rates on offer at the time, and making this period much easier for us now.

      I've changed my opinion on the risk of the bond markets turning against us. I thought it was reasonably likely in 2010, without some action - but on watching the Euro-crisis unfold and how willing people continue to be to lend money at insanely low rates - even though the risks are both historically high and impossible to properly calculate. Personally I feel that there's more than a 50% chance of Italy having to partially default. Their debt is rising, their economy is stagnant, their population is falling and they're in a fixed exchange rate system at the wrong rate, with a political system that makes serious reforms all but impossible. Yet they're paying under 2% with a debt to GDP ratio of around 136%, and rising by 4%-5% a year. Oh and almost all the Italian opposition parties are now committed to a Euro referendum, and campaigning to leave.

      1. John H Woods Silver badge

        Re: Impulsive voting

        "Pointing out to these people that the coalition had actually increased the national debt more in their term of office than the previous three administrations" -- John H Woods [sources: Govt figures reported by the Office for National Statistics, supported from comment I have read in the FT, The Spectator (both mentioned in my comment) and The Economist].

        "This is a pretty dishonest argument though, in that the trajectory of national debt was set during the administration of the previous government" -- I ain't Spartacus [sources: ?]

        You haven't even quoted enough evidence to support a disagreement with me, let alone call me dishonest. This is exactly the type of dismissive disengaged, blaming-the-others, political argument that I am railing against "Pah, these people are obviously stupid and/or decietful ... this is how it is ... it's quite obvious that this was down to the previous administration ..."

        1. I ain't Spartacus Gold badge

          Re: Impulsive voting

          You haven't even quoted enough evidence to support a disagreement with me, let alone call me dishonest.

          I didn't call you dishonest. I said your argument was - because I've only seen it made by people from the left as a sort of "nyer nyer Osborne's shit" mantra. I don't know where you sit on the political spectrum, and I wasn't sure if you were even saying you believed that argument, or if you were using it as a way of demonstrating people's lack of understanding of the problem.

          However, my supporting evidence, from my post, is here:

          in that the trajectory of national debt was set during the administration of the previous government - and short of insane levels of cuts, as were enforced on Greece with utterly disastrous (and utterly predictable) results the coalition was only ever going to have a limited effect on the total debt.

          To put this more clearly, the deficit in 2009-10 was something like £150 billion ish (sorry for not looking up the exact figures, but an approximation makes the point perfectly well). The coalition emergency Summer budget had about £6 billion of cuts in it, and I think they also underspent that year by a few billions more.

          But even with making cuts the total stock of debt was going to go up by those figures of hundreds of billions a year. So what was the total debt stock by 2010? £700bn? Add 5 x £120 bn and you've got some serious money...

          So yes, the ever increasing debt stock was a problem they inherited from the last government. There was no realistic policy they could have pursued that would have made a material difference to the fact that national debt was going to roughly double in that period. They could have cut more steeply, which would have been bad for the economy, or they could have defaulted on a portion of the national debt to get it down to reasonable levels - which would have been a catastrophic idea.

          Even if Osborne had managed to follow his plan to eliminate most of the deficit by the end of the Parliament (which would have required the Euro crisis not to happen - amongst other things), national debt would have still ballooned massively.

    6. LucreLout Silver badge

      Re: Impulsive voting

      Pointing out to these people that the coalition had actually increased the national debt more in their term of office than the previous three administrations combined was met with general disbelief

      Well, yes, because it's pure spin.

      I don't mean it's untrue. It's certainly a true fact, taken out of context and viewed in isolation. The labour government inherited a strong economy with low debt, a structural surplus, and ultra low employment. They then proceeded to p*ss that up the wall, then embarked on scortched earth policies in the run up to being thrown from office, gifting the coalition nothing but debt, a massive deficit, and little hope of turning things around. so little was the hope the the governer of the BoE publicly stated that whoeever won the election would be out of power for a generation.

      So, yes, people greet your statement with disbelief because what you're trying to imply by making it (that the coalition was less fiscally responsible than labour) simply isn't true. Even labour are starting to publicly accept that they over spent. People are gobsmacked you don't see it.

  5. bazza Silver badge

    Deficits are like chocolate...

    ...nice to have now and then, but too much all at once will make you sick. Especially when you're young and small. It takes a real grown up economy to get away with binging on them

    Plus they kill dogs.

    (may have stretched the comparison too far there...)

    1. PNGuinn
      Happy

      Re: Deficits are like chocolate...

      What effects do they have on lizards?

      Enquiring political minds need to know etc etc...

  6. a pressbutton
    Childcatcher

    Chocolate

    Kids chocolate is nasty.

    Is that the dark-but-not-bitter-and-quite-smooth chocolate of deficit, or the cadburys feel-the-hydrogenated-fat-globules-on-your-tongue defecalit chocolate.

  7. Chris Miller

    Accumulated debt

    But isn't that skewed by all the 'debt' hidden in Brown's beloved PFI contracts, and hence off balance sheet? While it may not technically be debt, the country is committed to paying fixed amounts for long periods (often decades) into the future, which smells an awful lot like debt to me.

    Lump all that in with the 'real' debt and we're getting perilously close to that 120%.

    1. Doctor Syntax Silver badge

      Re: Accumulated debt

      And not just PFI.

      There was the abolition of tax relief for pensions funds. No, dammit, let's call it a tax on pension funds - if the left can get away with calling reduced benefits a bedroom tax then we can certainly refer to a pension tax. That's left a pension deficit that big companies are going to be paying off for years to come and an end to final salary pensions for the foreseeable future.

      Then there was all the personal debt encouraged by keeping interest rates artificially low (ignore a housing bubble so as to get a false measure of inflation). That left a whole lot of personal debt to be paid off at some time in the future - or written off if it couldn't be paid off. And when it couldn't be paid we had QE lowering interest rates well below inflation devaluing the savings of those who hadn't fallen for the original scam. Meanwhile the govt had spent the VAT & Stamp Duty collected from the spending that the debt had financed.

      Gordon Brown's genius, if I can call it that, was to find hidden ways of making the future pay for his now. Tony Blair's genius, if I can call it that, was to step aside just as the first traces of that future were about to hit the fan.

      1. Chris Miller

        Final salary pensions

        Happy though I am to blame Brown for anything and everything (since most of it, as you point out, was actually his fault) and the changes to taxation of pension funds certainly didn't help, speaking as a (lapsed) actuary, the demise of final salary schemes was already assured.

        Basically, defined benefits schemes (their proper name) only really work if you can (expect to) remain a member for at least 20, preferably 30 years. And the number of jobs where that's a realistic expectation is vanishingly small (maybe teachers or the NHS, but very few in private enterprise). If (as the great majority of people now do) you change employers every few years, you don't have time to build up significant benefits with any of them, and while (in theory) you could transfer accrued benefits from one scheme to another, the two sets of actuaries tend to take contrary views of the values* involved, so you end up with far less in benefits than you might expect.

        * That's their job - they're paid to protect the benefits of the people already in the schemes, not to facilitate transfers between them.

        1. Doctor Syntax Silver badge

          Re: Final salary pensions

          "the number of jobs where that's a realistic expectation is vanishingly small"

          To some extent deferred inflation-linked rights will help to some extent although that assumes that you not only stay in the same job but never get promoted. And CPI rather than RPI linking doesn't help either (remind me who do we have to thank for that). Of course moving job could well be a response to never getting promoted so that may cancel out the problem.

          However with the move to defined contribution the future tax still applies but now it falls wholly on the employees. I got both my final salary pensions; I'm not too sure how the kids will fare.

        2. Anonymous Coward
          Anonymous Coward

          Re: Final salary pensions

          I came across my first job contract the other day, it included a defined benefits scheme based on 1/80 of final salary per year of service. If I had that in my current job, 15 years so far, then comparing to the latest forecast from my pension supplier an annuity-based pension would be 2.5x as much, and the overall value would be nearly 400K higher. So, not totally impressed by your argument.

          Note that PFI was a Conservative invention, adopted enthusiastically by Labour, then by the coalitions, and now by the Conservatives again. All of the parties involved get their "free" financial advice from a group of accountancy companies who sell consultancy on how to set up PFI contracts, how to sell them on to maximise profits, and how to get out of them.

          1. Anonymous Coward
            Anonymous Coward

            Re: "big four" accountants/consultancies/auditors

            "All of the parties involved get their "free" financial advice from a group of accountancy companies who sell consultancy on how to set up PFI contracts, how to sell them on to maximise profits, and how to get out of them."

            In unrelated news: Greece was sold the PFI story too, in order to qualify for membership of the Euro. Nice work there by Goldman Sachs, whose tentacles are everywhere in Europe if you look carefully.

            Closer to home, it'd be interesting to see how many UK MPs receive substantial funding fom the big accountants. In principle the Register of MPs Interests should have that info, I don't have the skills to do the processing effectively though.

            E.g. the Shadow Secretary of State for Business had two PriceWaterhouseCoopers staffers on his team at times in 2014, declared as worth around £70K. The declaration obviously makes it all OK doesn't it.

            http://www.theyworkforyou.com/mp/24950/chuka_umunna/streatham#register

  8. Anonymous Coward
    Anonymous Coward

    Smokescreens within smokescreens

    I tend to view Osborne's rhetoric, on debt and deficit, as little more than a smokescreen to the Conservative's model of redistribution. A bit like Brown's stealth taxes, except you can see some smoke.

    Anyway, we now have deflation (hurrah!), and my spider senses are telling me this is a pretext to something.....

  9. Banksy

    It doesn't matter...until it does

    I don't really accept that a deficit doesn't matter in the current environment experienced by the UK. The national debt has gone from around £400bn in 2000 to £1.4tn today. To say that continuing to run a deficit and adding to this debt in these curcumstances is ok doesn't seem wise to me.

    "Don't worry!" you say, the deficit and the overall national debt are just something that future tax payers have to deal with. Well, what happens when the tax base is continuously eroding due to perverse incentives (I'll not work or just work 16 hours and get some benefits too)? Who pays the debt then? Do the international community and money markets like this? Does our currency hold it's value if we continue with money printing to cover the gaps in tax receipts?

    Excluding our real life situation I do agree that some level of deficit is acceptable if it is to fund useful projects, like infrastructure, or those that will give a return. It's not useful if it is run to bail out parasites on the economy.

    1. Tim Worstal

      Re: It doesn't matter...until it does

      That's pretty much what I say, isn't it? The deficit doesn't matter but the accumulated national debt might and soon/could will?

      1. David L Webb

        Re: It doesn't matter...until it does

        The national debt whether in nominal terms or as a percentage of GDP doesn't really matter either. What matters is the amount of interest we have to pay on it and whether that is going to increase to unsustainable levels. The current amount of interest we pay on this "colossal" national debt is less than 3% of GDP which is less than we were paying in the 1990s. UK debt also has one of the longest maturity periods in the western world at around 14 years meaning that we have in effect fixed our interest payments for a long period.

        And in historical terms this "colossal" level of national debt compared to GDP is closer to the historical norm than that in recent decades. Since 1692 the national debt as a percentage of GDP has been above the current level about as much as it has been below it - with the biggest peaks being in 1819 at 260% of GDP and in 1947 at 237% of GDP. Although the latter wasn't a great time - rationing etc - it was also the time when we managed to build the NHS and welfare state and that was with a debt/GDP ratio three times that of today.

        As to surpluses there have hardly been any since we came of the gold standard in the early 1970s.

        The Conservatives managed it in 1988-1990 and Labour in 1998-2001. But these were mere blips being dwarfed by the subsequent deficits the same parties had during their subsequent time in office.

        1. auburnman

          Re: It doesn't matter...until it does

          The interest may be small as a proportion of GDP, but it's still more than we spend per year on Defence or Welfare or Education.

          1. David L Webb

            Re: It doesn't matter...until it does

            The interest may be small as a proportion of GDP, but it's still more than we spend per year on Defence or Welfare or Education.

            But apart from the period 2000-2010 and one isolated year in 1992 it is the lowest level of interest/GDP we have had to pay since the first world war.

            It has averaged around 4% of GDP since the second world war rather than the current level of just under 3% and was even higher between the wars peaking at 9.60% in 1932.

            And this isn't about to change since the interest is fixed with a long maturity profile.

          2. David L Webb

            Re: It doesn't matter...until it does

            The interest may be small as a proportion of GDP, but it's still more than we spend per year on Defence or Welfare or Education.

            And by the way you are wrong.

            The interest payments for 2014 were £47.7 billion total

            Total Defense spending was £44.3 Billion

            Total Welfare spending was £112.4 Billion

            Total Education spending was £90.2 Billion

            Total Pension spending was £143.2 Billion

            So the interest payments were only bigger than the spending on defence not the other areas you mentioned.

            That is central + local government if we just take the central government figures then you get closer

            Interest payments £47.4 Billion

            Central Government Defense spending was £44.3 Billion

            Central Government Welfare spending was £58.0 Billion

            Central Government Education spending was £41.9 Billion

            Central Government Pension spending was £143.2 Billion

            But spending on Welfare is still well above the amount paid in interest payments

            See

            http://www.ukpublicspending.co.uk/year_spending_2014UKbn_14bc1n#ukgs302

            1. auburnman

              Re: It doesn't matter...until it does

              Yeah I made an absolute hash of reading those charts. Mea culpa.

      2. Richard 12 Silver badge

        Re: It doesn't matter...until it does

        Yes, and a little bleeding doesn't matter, but losing too much blood will kill you.

        It makes sense to run a deficit in a recession - it's a way to get out of it - but you must run a surplus during the boom, or the debt will become too high to pay.

        1. David L Webb

          Re: It doesn't matter...until it does

          It makes sense to run a deficit in a recession - it's a way to get out of it - but you must run a surplus during the boom, or the debt will become too high to pay.

          Not so long as the economy grows enough and inflation eats away at the debt.

          As I stated earlier surpluses since the 1970s are extremely rare and were just blips with subsequent deficits wiping them out in short order.

          Unfortunately the Keynsian goal of running a surplus during the boom and spending your way out of a recession with a deficit is harder to achieve than to talk about.

          Firstly it goes against human and political instincts which are to spend during the good times and cut back during a recession. This latter tendancy was bolstered by Margaret Thatcher's popular but flawed comparison of the country's finances to those of a business' or housewife's budgetting.

          Secondly it is difficult to accurately determine the position in the economic cycle. The cross-over point from bad times to good or vice-versa can often only be determined a few years later after all the stastics have been collected and been corrected a few times.

          The only governments since the 1970s which came reasonably close were the Labour governments starting in 1997 which probably by luck as much as judgement followed the economic cycle reasonably well up until about 2006. No other government came anywhere near as close which makes the Conservative charge that Labour should have got back to running a surplus before the financial crisis a bit rich.

        2. I ain't Spartacus Gold badge

          Re: It doesn't matter...until it does

          It makes sense to run a deficit in a recession - it's a way to get out of it - but you must run a surplus during the boom, or the debt will become too high to pay.

          Not quite true. The bit about running compensatory deficits in busts is obviously right. The Austrians are mad. Remember those predictions from the Troika in 2010 that the Greek economy would only shrink by 4%, then 8%, if they took their medicine? Well the Greeks cut their total government spending by 25%! And their economy shrank in the same period by 26%. I believe that's the biggest peacetime cut in government spending in modern history - and not coincidentally is one of the biggest peacetime recessions in modern economic history. One for the Austrian school to ponder on perhaps...

          Oh, and by the way, the Germans are big, fat liars. The Greeks sure dragged their feet a lot and squealed - and I wouldn't trust their government to run a whelk stall - but they did implelment quite a few of the reforms. According to the OECD more than any other country in Europe during this recession (although their economy started as one of the least flexible). And I think the 2nd biggest cuttters in Europe were Ireland, who cut government spending by about 6% over 2 years, not Greece's 25% over 4.

          But to get back to the point, Keynes was the one who advocated running a surplus during the boom. He wanted to have some wiggle room ready for spending in the recession of course. But he was also talking about demand management, so you'd cool the boom by raising taxes or cutting spending, and then stimulate during the busts with deficit spending.

          But so long as your deficit and interest bill is less than GDP growth plus inflation, then the national debt will fall as a percentage of GDP. So if you've got 2% inflation, plus 2% growth and are only paying debt interest of 3% of GDP, then you don't have an urgent need to cut. You could even run a small deficit, say 0.5% of GDP and still have the overall debt-to-GDP level fall. There are risks to this. After all Brown's over-spending wasn't awful, by historical standards, it's just that the bubble was so big and the bust so nasty that it made things materially worse. Had we had a recession that only lost us 2%-2% of GDP, without the chaos of the banking crisis, recovering would have been far less painful.

  10. G Mac

    Don't like paying off debt? Don't issue it!

    Just keystroke into the accounts, like when the banks were bailed out.

    Of course I happen to know that that MMT stance makes folks mighty uncomfortable - but that is ideology, not economics.

  11. Buzzword

    Flow of money

    "if you're paying that interest out to foreigners then that's money that leaves the domestic economy"

    That's true for Greek euro payments to Germany; but when Britain repays its debts to a foreign creditor, those are pounds sterling; and they can only be spent in Britain. So it never really leaves the British economy.

    The result is that printing money has the same effect as printing debt: it's inflationary.

    1. I ain't Spartacus Gold badge

      Re: Flow of money

      Remember though that currencies change their value. So if our economy isn't doing swimmingly, but we're paying off debt to foreigners, then Johnny-Foreigner might choose to sell those pounds to someone else at below the market rate.

      Then our exchange rate falls. This makes our exports cheaper abroad, and so may help us to sell more of them. But it also makes our imports more expensive. This means we have become poorer as an economy, as we have to sell more exports in order to achieve the same level of imports we were getting before. If a large part of our economy is made up of international trade - then overall prices of goods will rise (again we are poorer). This is of course inflation - and workers may demand higher pay in order to counteract it. And so the merry dance of economic ripple-effects continues...

  12. All names Taken
    Joke

    An excellent example ... (part umpteen)

    I don't get how restructuring UK civil service equates with country going bankrupt. Perhaps the point is that corrective checks and balances and wheezes and evasions do exist in private sector but in UK public sector the tax paying (whether voters or citizens or subjects or not) always pick up the bill.

    It seems an essential corrective structure is missing.

    Economics is a hocus-pocus upfrontery and besides I am very tempted by the "The Next Step in Evolution" ad asking me if 'I am ready' (well, really "Are You Ready?") with a link to Watch Incredible Video. But I wondered what a scantily clad female human wearing almost nothing and looking down at me might mean?

  13. Anonymous Coward
    Anonymous Coward

    BS apart from limited government

    Pragmatic temporary help maybe a necessary evil, but neo-keynesian central banks etc. ignore that Keynes said that are conditions and limits to help, so are doing ZERP and QE to infinity, so we look like we are on the path to an eventual massive sentiment bubble bust, the sooner fall of the petro-dollar due to the US pissing off the BRICs faster; possibly a combination of depression, hyperinflation and even war! There are plenty of Black Swan candidates which could suddenly burst this sentiment bubble, with even less safety net this time!

    Even if Austrian economics has flaws, they have far more of a clue than Keynes had, let-alone the neo-morons, because they have a more complete model and better maths.

    The GDP becomes increasingly misleading for debt and tax ratio calculations as an increasing amount is made up of government spending (mostly social consumption) because it means that there is far less potential taxable revenue than expected, so the situation is probably much worse than this article suggests!

  14. Graham Marsden
    Thumb Down

    It seems to me...

    ... that George's aim is not simply to give us a "small state", but to utterly cripple the ability of any future government to undo what he has done because he will have sold (sorry, privatised) so much of our social, welfare and justice system that it would be almost impossible to get it back without bankrupting the country.

    Of course the fact that the people who benefit most from this will be his rich mates (and his fellow Tory Party members who will be in line for tidy and lucrative Directorships) and at the expense of all the "little people" who will end up paying through the nose is neither here nor there...

    1. Richard 12 Silver badge

      Re: It seems to me...

      Tory mates or Labour mates, it's the same thing either way.

      What's needed is to break that cycle.

      Suggestions on a postcard please!

      1. Graham Marsden

        @Richard 12 - Re: It seems to me...

        First suggestion: Fix our broken electoral system that allows a party with a third of the votes to get half the seats and claim that this "majority" gives them a right to do whatever they like!

        1. Doctor Syntax Silver badge

          Re: @Richard 12 - It seems to me...

          Second suggestion: Fix the sense of entitlement that leads parties with even fewer votes to claim that they've been robbed.

          1. Graham Marsden
            Boffin

            @Doctor Syntax - Re: @Richard 12 - It seems to me...

            Yes, because it's right that a party that gets 36% of the votes gets over 50% of the seats, so it must be equally right that parties which get 12% or 4% of the votes should both get 0.15% of the seats...

            1. LucreLout Silver badge

              Re: @Graham

              Funny, I don't recall you compalining loudly about that during the 13 wasted years of labour, when that very systematic imbalance worked in their favour. Sour grapes, no?

    2. LucreLout Silver badge

      Re: It seems to me...

      ... that George's aim is not simply to give us a "small state", but to utterly cripple the ability of any future government to undo what he has done

      I just can't understand why you say this as though it's a bad thing.

      Labour sought to tie the hands of future government sot a big state with reckless PPI contracts, massive public sector pension liabilities, and a welfare class so numerous they can carry the vote.

      Britain simply can't endure another tax, borrow and waste labour chancellor, as they all are. Labour have proved time and again that they can't be trusted with the pruse strings, and the British public have proven time and again that they will fall for labour lies about that.

      The only logical solution for any responsible chancellor is to tie the hands of all future labour chancellors such that we can skip over the economic train wreck that always, always accompanies labour leaving power. How that should be achieved may be debateable, but that it must be achieved is now beyond reasonable doubt, and its time to move the debate forwards.

      1. Graham Marsden

        @LucreLout - Re: It seems to me...

        I think this blog posts explains it better than I can

        PS If you think I have any love for the Labour Party just because I disagree with the Tories, you really have missed the point.

        1. LucreLout Silver badge

          Re: @LucreLout - It seems to me...

          If you think I have any love for the Labour Party ...

          Amazing, isn't it? So many people voted for them, and yet so very many are too ashamed to admit it. Perhaps because they know that voting out of naked self interest has led to another bankruptcy for Britain, and once again it falls to the Conservatives to clear away the mess.

          There isn't a single credible source with any evidence of economic capability on the part of any Labour chancellor. For the good of the country, the grown-ups have to take away the cheque book because the endless cycle of shore-leave spending labour chancellors, followed by Conservative chancellors fixing the mess, followed by the public being bought off with bribes to vote in the next Labour "useful idiot". It's just getting us nowhere as a country and we need to stop. Its time to move the debate forwards and we can only do that by limiting the damage any future labour chancellor may cause. "there is no money", remember?

          1. Graham Marsden
            Facepalm

            Re: @LucreLout - It seems to me...

            It's amazing, LL, how you manage to completely fail to comprehend what is written in nice, plain, easy to understand English and, instead, just want to put your own spin on it because that fits in with your mindset...

            1. LucreLout Silver badge

              Re: @LucreLout - It seems to me...

              how you manage to completely fail to comprehend what is written in nice, plain, easy to understand English

              Yes, but its also a load of old lefty, angsty, fact-free garbage (your link that underpins you view).

              The author cites Chomsky first among his influences, which isn't so much a warning sign as it is hitting the intellectual buffers. Next up, he teaches English... After working as an administrator in the public sector. So his income and entire way of life is wholly dependant upon a big state solution. His recommended links consist almost entriely of leftist nonsense, which is hardly indicative of his being widely read.

              And yet.... and yet, you've fallen for it hook, line, and sinker. You urgently need to reflect on how that has happened. You've soaked up the spin, drank it down like facts, burped it up here, and then you have the temerity to criticise me? Seriously, you've been badly misled and you need to adjust your reading list to encompass something factual, and something representing the other side of the coin.

              ETA: Curiously, in all his verbal crapulence, the author you cite completely misses Labours IMF bailout in the 70s, when the country was bankrupt using any definition of the word. Some might find that strange, no? The article is empty rhetoric, and so is any viewpoint based upon it.

              1. Graham Marsden
                Boffin

                Re: @LucreLout - It seems to me...

                > You've soaked up the spin, drank it down like facts, burped it up here, and then you have the temerity to criticise me?

                Hello Mr Pot, this is Mr Kettle calling...

                1. LucreLout Silver badge
                  Boffin

                  Re: @LucreLout - It seems to me...

                  I see you have nothing useful to add, so we'll leave it here.

                  Widen your reading list (a lot), open your mind, and do some proper research rather than regurgitating ill informed blog-polemic here (that's the Reg writers job!), and we'll continue another time.

                  1. Graham Marsden
                    Facepalm

                    Re: @LucreLout - It seems to me...

                    I refer the gentleman to the post I made above his.

  15. Jeff Lewis

    "This is sometimes known as the Keynesian ratchet. Boost spending in the good times, then argue vociferously that it cannot be cut in the bad. Because cutting spending in the bad is austerity and that's doubleplusungood. And thus does the size of government ever ratchet up which is the point and purpose of the tactic.

    OK, that last is me being even more cynical than usual."

    More cynical and partisan than usual anyway.

    I'm sure you know perfectly well that's not what Keynes proposed. He said "save (or pay down debt, which is a kind of saving) in good times, spend (even if you have to borrow) in bad times... " which is essentially what you're proposing. The fact that governments (especially Tory governments, thank you) typically do only one side, the other side, or neither side of this and then mess up badly doesn't really discount Keynes' model.

    1. Tim Worstal

      Sure, Keynes as Keynes is different. But that ratchet does happen, at least in part, even if Keynes never meant it to.

  16. Anonymous Coward
    Anonymous Coward

    Economics and Economists

    Karl Marx criticised economists calling them "the sycophants of the bourgeoisie." They responded by becoming the sycophants of the political left. Now, the all favour socialism to one degree or another. In their haste to establish economics as a science with the same standing as physics or chemistry, they forget that the heart of economics is human action. People are not always rational and they seldom think in terms longer than the end of their next pay period.

    The real danger, as Mister Worstall correctly pointed out, is the accumulated debt and the interest due on that accrued debt. You cannot, no matter how hard you try, spend your way into prosperity, yet this is precisely what the current crop of economists insist that we do. They do not realize that it is savings that matter more than spending. They have it completely backward. Savings and deflation are good things. Spending and inflation are like drinking too much. It fouls up your behaviour and ruins your health.

    1. Alan Brown Silver badge

      Re: Economics and Economists

      "economics as a science "

      Science consists of doing the same thing and getting the same results each time or knowing _why_ you didn't.

      Most economics at government level is voodoo handwaving at best.

      It's rather telling that the people notionally in charge of the economy have _NO_ economic qualifications but believe they know better than people with actual experience and an understanding of the backgrounds and put their friends in charge of crucial decisions. It's Dunning-Kruger writ large

  17. pbklink
    Thumb Up

    Great article Tim

    Love reading articles which illuminate the intersection of economics and politics with a bit of philosophy thrown in.

  18. YARR
    IT Angle

    These economic fact with opinion pieces are interesting despite having nothing to do with IT, but it would be helpful if they included references to official sources of all the figures quoted.

    The last figures I recall seeing for the British national debt was over 100% of GDP and growing, despite the cuts. Perhaps the official government debt doesn't include all real debts or predicted future liabilities? I still consider an 80%+ deficit far too high, and that over the economic cycle borrowing should not exceed the surplus.

    1. All names Taken
      Happy

      True but ...

      ... probably a few people are restrained about work related stuff because it is work related?

      But it is great to vent, widens appeal of el Reg, and gives opportunity to discuss, no?

  19. phil dude
    Joke

    ship B

    The Golgafrinchams had the right idea to cut the pensions...

    P.

  20. codejunky Silver badge

    My take

    I too am a small state kinda guy but I do believe a recession is necessary to purge the economy of the excess accumulated through the boom. Job losses are bad and have a terrible effect on the mentality of a country but that contrasts with the insane euphoria of a boom which people need to come down from. Without a crash people look for greater highs and the excesses of the previous boom are propped up by bad monetary policy. Eventually it has to end in tears and much worse than before.

    Watching labour spend everything and more during a boom was as disappointing as watching your well behaved child go nuts in a sweet shop. And of course nobody wants to cut back even though we couldnt afford the bribes in the first place. That money invested and saved could have provided a much better cushion when the recession hit. Personally I would like to see personal and business tax and regulation reduced when a recession hits to allow new businesses to take the place of the failing excesses. Losing a job hurts until you get a new one.

  21. ZanzibarRastapopulous

    Brown's Surplus

    I seem to recall that Labour came to power in '97 having promised to stick to Ken Clarke's budget, which is what led to the surplus rather than anything Brown did.

    1. I ain't Spartacus Gold badge

      Re: Brown's Surplus

      Well they may have been Ken Clarke's plans, but it was Brown that carried them out. And Ken Clarke could safely make them, as he knew that he didn't have a cat in hell's chance of winning the 97 election.

      Labour could almost certainly have got away with promising a bit more spending in 97, if they were reasonable. The Major government was on its last legs by then. But who can blame Labour for playing it safe, after what happened in 92.

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