The deficit is the number one priority

I’ve lost count of the number of times I’ve heard “Reducing the deficit is the number one priority”. I’m all for cutting waste and inefficiency – I see enough of it in the day job – but the cuts announced by George Osborne and his human shield David Laws earlier this week are about anything but waste and inefficiency. Cuts which mean that people are put out of work, that fewer students go to university, that children will no longer have a better financial start in life are not about waste and inefficiency.

But how much of a problem is our deficit? How much debt are we in? Well, actually, it’s not as bad as it appears, and it hit home when I saw this on the BBC website earlier today. Yes, our debt level looks pretty bad, at 68.1% of GDP, but whats that? Germany at 73.2% and France at 77.6% Italy and Greece seem the real basket cases at 115% each. We’re comparable with Austria (66.5%), and you don’t hear about the crisis which the Austrian Government is dropping everything to resolve.

Ahh, say the doomsayers, it’s the deficit this year which is unsustainable! We’re at 11.5%, and Germany only has 3.3%! Well, the answer to that is in the previous paragraph – Germany can’t afford it, and the reason they can’t afford it is that they don’t have the traditional tools to use in this recession – they can’t devalue their currency. But we can – in fact a falling pound is likely to be the best solution to our issues – stimulating manufacturing exports and creating jobs, as long as inflation is kept under control. So the deficit isn’t the big problem that it is painted to be. “But what about the markets?” I hear you cry. Well, I don’t hold with that much – the worst they can do is to short our currency and as I said that’s the best thing which could happen to us at the moment – not the worst. Plus the idea of “Do what we want or our mates in the City will destroy your economy” strikes me as bully boy tactics of the worst sort. I’ve never liked those sort of bullies, and it isn’t a nice sight in a cabinet minister.

The other phrase which has cropped up recently is the comparison of the nations finances with the household budget. Well, quite frankly, that’s a load of rubbish! Most households have a LOT more debt in proportion to their income compared to the nation – after all, how many people do you know who have a mortgage of 68% of their income? It certainly won’t buy any properties around here on my salary – it would be barely enough to buy a new car on mine! When times are tough, a household cuts down on unnecessary expenditure, but not on things which will create wealth in the long-term, like university places, or getting long-term unemployed youngsters off the dole. Thats like a household cutting out food, and thinking that it can go without any for a little while. What these things are like – and the Child Trust Fund especially so – is like a household using money to improve the house, replacing the windows, which will reduce fuel bills in the short-term and add value in the long-term.

Now I don’t think for one minute that the conservatives are really stupid enough to confuse investment with revenue expenditure, which of course means that the reason they’re doing it is even worse. They’re doing it because they like doing it. And they don’t care.

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2 Responses to The deficit is the number one priority

  1. Pamela says:

    An important point, well made.

    I’ve long argued that the Tories invitation to voters to view the public finances like their own private ones was not only flawed but a cynical manipulation.

    The Tories know that money ‘spent’ can be invested in the country’s future. They also know that ‘cutting waste’ means putting people out of jobs and paying them benefits to do nothing rather than paying them to do useful jobs and pay tax.

    The only household cut back I can compare that to is cancelling a phone/internet/TV package to ‘save money’ only to find out that the penalty for breaking your 18 month contract is to pay everything you would have paid anyway AND have no phone/internet/tv AND you needed the phone and internet for work to make money anyway.

    The Tories know that investing in the country isn’t money down the drain. But it fits their vision of a future Britain to cut investment. And they cynically rely on ordinary people to not realise the differences between their household budget and the public one.

    Note also they encourage people to see the money put in the banks as debt, when in fact it bought assets which have grown in value. They rely on the ignorance of ordinary voters. This is a mistake (we’re not as dumb as they think) and it’s despicable.

  2. jruddy says:

    Good points Pamela – I know how cutting back the phone and internet is a false economy, as you then cant get the best deals on car insurance, for example.

    There’s a good article from Martin Wolf in this morning’s FT backing me up on this very point –

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