Obsessed with public debt does not allow us to fully understand the role of the economy and government borrowing
Just like the previous global financial crisis in 2008, after the Covid-19 pandemic, a completely predictable phenomenon emerged. Whenever new statistics of public finances appear, the following situations arise: public debt intimidation, False family analogy, with A series of comments Lack of any literate macroeconomic analysis. Of course, it is important to understand the financial situation of the public sector, but headline statistics alone cannot tell us so much. Moreover, in the rush to become obsessed with public debt, the true story of the macro economy and the basic role of government borrowing in it have been ignored.
In fact, public borrowing has not so tall Since the Second World War was serious, it should not be taken lightly. But again, the fact that debt financing has never been so affordable is also very reassuring. However, despite the former’s numerous headlines throughout the pandemic, few people have noticed the fact that the government’s debt servicing costs are at historically low levels. This is not just the reporter’s fault.The National Bureau of Statistics has not even raised this indicator to its right “The main points of the release of public finance statistics”-it should be rectified immediately.
It is difficult to exaggerate the actual cost of debt. In the most recent fiscal year, government borrowing has increased by nearly 300 billion pounds.However, even with this increase, the annual cost of repaying the entire government debt is still Depraved During the same period, it increased from 48 billion pounds to 38 billion pounds per year. Imagine applying for a larger loan for a brand new home: your overall debt has increased.Then imagine that the bank tells you that your monthly debt service is actually less You take on additional borrowings than before.
Public debt and borrowing figures are usually expressed as a ratio to GDP (national income), which is Often falsely assume The British government should repay this debt within a reasonable short-term.However, unlike the family, the government can theoretically Endure forever. So technically speaking, the British government did not really repay the debt-but “Refinancing” or “Turn it over.” This is actually an economic jargon for the government to take out new debts to repay old debts.
Therefore, for macroeconomists, what really matters is the cost of debt repayment (affordability)-whether the government can safely repay debt interest.There are countless “The battle of the tribes Spanning the schools of macroeconomic thought.However, there are Comprehensive virtual agreement When the cost of debt service is equal to or lower than the economic growth rate, public finances can continue indefinitely. This means, please be courageous, future increases in public debt may not require tax increases or cuts in public spending. If the interest rate is lower than the increase in national income, the relative debt burden will decrease accordingly.
The second obvious omission in most reports on British public sector finance is the role of the Bank of England.In fact, the Bank of England has more Impact on debt service costs Even better than the financial market where the government borrows money.In addition, if the bank ends up permanently holding the £895 billion of British government debt it purchased through it, it is the so-called ‘In the quantitative easing plan, the debt principal owed will be effectively cancelled. This will reduce the public debt to GDP ratio to 69% and will more than double the new debt accumulated during Covid.
But all this points to a more worrying issue.This Fetishism and intimidation Around the impression that public debt gives people, the government’s financial status is a key barometer of a country’s economic welfare.The means to an end somehow become ‘Taking oneself as the goal-there are potentially catastrophic consequences for the economy itself and the people living in it.
As some Noticed, Accepting Latest forecast According to the Office of Budget Responsibility (OBR), the British government has basically accepted that Covid-19 will cause permanent loss of national income. In other words, by 2025, GDP will be 100 billion pounds lower than without Covid—about 3,500 pounds per household. The government has effectively committed to reducing economic prosperity. What is striking is that this concession was made without any political or even economic debate-let alone news reports.
This is in sharp contrast to the approach taken by the United States.Throughout the pond, policymakers are clearly committed to ensuring that there is no such long-term ‘Scar”, through the implementation of ambitious fiscal stimulus. The Institute of Public Policy recommends that the British government should match the Biden administration’s ambitions. To Push it like Biden, Britain will need the four economic stimulus currently planned to minimize long-term harm to businesses, workers and families.
Naturally, the Biden-style stimulus to the UK may or may not bring disadvantages and trade-offs. But at least, don’t take the permanent decline in living standards as a fait accompli, at least let us debate! It’s hard not to think that this debate might become more probable, and it might happen earlier, if it weren’t because we are used to debt worship.