I’m watching Scotland play rugby union, which is like having teeth pulled to a fan from the days of Andy Irving and Mike Renwick. I feel a bit like this trying to explain economics basics on the kind of sums that make sense. The idea that even Nulabour are somehow responsible for the current mess because of over-spending is the kind of canard that makes my teeth itch. The over-spending was on stuff like policing, health and other things Tories really feel we should go without. This material is closer to the mark and explains what built-up the current farcical situation.
This is from the OECD and shows what’s been increasing public debt between 2007 and 2011 in four selected European countries.
The red segment is fiscal stimulus – what becomes clear is that the UK’s fiscal stimulus (the VAT cut and the bringing forward of investment) was relatively small and that “austerity Germany” was doing a lot more. The yellow segment is support for the financial system – the direct costs of bailing out banks. It’s interesting again to note that Britain’s costs here – although higher than those of France or Italy – are well below German levels. The grey segment is the ‘interest-growth dynamics’ – the effect of higher interest payments (due to either a bigger stock of debt or higher rates) adjusted for growth. Here we see that the UK and Germany are doing relatively well but Italy is really suffering. The blue segment is ‘accommodated revenue loss’ –as the IMF explains are ‘revenue losses associated with output losses from the financial crisis’ – which was clearly the driver of the UK’s increase in public debt.
So there we have it – according to the IMF the reason the UK has experienced a large build up in public debt is because of the costs of the large loss of output following the crisis. Not quite the story of public sector profligacy the government is usually so keen to tell.
So the real story is not that we’ve been paying too much for our cops and others now being forced to take austerity medicine. The big problem is our reliance on financial services and failure to invest in real production, whether in the private or public sector. This rather suggests that what should be taking the austerity is the financial services sector at a rate of some five times that as society in general. More than this, this sector should be subject to radical structural change, much as agriculture and manufacturing have been through to make it genuinely efficient and productive.
The banksters are still insisting on vast salaries and bonus payments – but the evidence is not only that they are not successful but a liability – but also that they and their cronies could well be done away with in favour of utility banking and a bigger public sector stimulus to redirect efforts into building production and capacity.
We’ve been had on a butty.