Tuesday, January 04, 2011

Debt - should we be bothered?

I tweeted l link to this piece on the UK debt set in context.

Matthew Jeffries (@Berrieds) tweets back "Borrowing will not get us out of recession, will only weaken the private sector. A historical perspective" and links to this blog post on Thinking With a Hammer (TWAH).

TWAH says economic laws are not different between a nation and the individual.

RL: Well, they are different, so. Nation states command all the diverse resources, both human and natural, in their territory. Nation states have the ability to create money.
Yes there are similarities. Both nation states and individuals are compelled to satisfy their needs for water, food, warmth, shelter, and hygienic waste disposal. But the pure individual (think Robinson Crusoe) has no need to trade with himself, nor to administer his affairs, nor to have money.

So the premise is wrong.

TWAH says public expenditure does not create wealth. RL: Not true. If, say, the Government invested (either by borrowing, or better, by creating the money) in a Green New Deal, a massive project in energy conservation and renewable energy production) it would create wealth both in the short and long term.  It would enable money otherwise spent on fossil fuels to be diverted elsewhere, and will cushion the impact of Peak Oil. It  would also give our descendants plentiful cheap energy, and also help save them from the worse effects of global warming.

TWAH then gives a useful historical review of the UK's borrowing record since the war.
He argues that Keynesian policies only work when unemployment is high, and that they must be financed out of borrowing, not taxation. But borrowing burdens future generations: the det of WW2 was only paid off in 2006.

The UK National Debt now stands at somewhere between £2.2 and £3.8 trillion, depending how you count it.

Wilson, says TWAH, increased the debt 1964-70, leading to a devaluation.
[This is barely visible as a lump on the falling graph], which led to higher costs for imported raw materials, which combined with higher OPEC oil prices, led to inflation. Heath's attempts to control inflation with wage restraint led to the miners' strike and a Labour Government, which ended in Healey needing a £3.9 bn loan from the IMF, with £2.5bn cuts in public spending. 

Under Thatcher average wealth went up, but people hated her so much we got Labour, who inherited a public sector debt of 32% in 1997, and bequeathed one of 50%. 

TWAH is big enough to recognise that some of this 50% figure is due to the banks, but puts the blame for that on Labour's slack regulation regime. [Like the Tories would have been tougher on the banks].

He ends with a general discussion, key to which is that it is a bad idea for an economy to be over dependent on the banks. See Ireland, Greece, [Iceland] - and the UK.

Overall, TWAH does a little historic review reiterating the notion that Tories cut and Labour spends. It is the old struggle between two dinosaurs, one wanting a bigger state and one a smaller state. The dinosaurs have no concept of true wealth, won from natural resources by human skill and intelligence, nor of the necessity to transform to a green economy, in harmony with the laws of nature, as far as possible cyclical in its use of materials instead of linear, an economy in which everyone feels motivated to play a part.

Debt is not good. It is indeed a burden on succeeding generations. Most of our national debt is dumped on us by our own forebears. However, the financial burden of debt that so concerns Osborne and his dupes is just the tip of an iceberg of ecological debt that we will be passing on. I'm talking about resource depletion, biodiversity loss, and change in global heat transfers . There is a bigger, unseen debt, the one we owe to our children. This we can address by the Green New Deal, greening the economy through a Green Wage Subsidy, and by measures such as reforestation of the whole planet. If there is a a financial cost to this, and if it is paid for by borrowing, it will benefit the generations who are required to pay for it.

This kind of consideration shows that it is time we move beyond the old, irrelevant  tory/labour ding-dong, and begin to look at the economy in its correct ecological setting.

No comments: