Duncan’s Economic Blog

The Debate on the Deficit

Posted in Uncategorized by duncanseconomicblog on July 6, 2009

Political Betting is one of my favourite websites.

 But I must say that I have many problems with today’s offering on spending cuts.

 Morus writes:

 Regardless of where you stand on these issues politically, we should all acknowledge that there is a huge problem with the debate itself. In this country, short of holding a PhD in economics, the political debate about the economy is largely impenetrable. I have the utmost respect for journalists like Fraser Nelson, who actually follow, interpret, and explain the different financial mechanisms that both parties use to twist the numbers and make their political points, but I wonder how many others (like myself) find the economy to be discussed in a way that makes it difficult to grasp intuitively.

The way the economy is generally reported doesn’t allow the average voter to form a view on what course of action should be taken, and to argue that with the facts that underpin that view. This is bad for democracy, and especially so if public sector spending cuts are going to be the principle battleground at the next General Election

 I have less respect for Fraser. But that’s beside the point.  I think Robert Peston, Paul Mason  and Stephanie Flanders provide excellent economic coverage on the BBC.  Although I do agree that economic news should be given more prominence.

 Where I have a major problem with Morus’s article is here:

 The first is the centricity in public debate of the National Debt and of the Defecit. Mainstream political debate in the US has these figures front and centre, especially the latter – the public is made aware of whether the Budget is in surplus or whether the Defecit has grown year-on-year. That information is rarely communicated simply in the UK. Finance, especially governmental finance, is complex – but I’d argue the way it is reported does not allow for many regular voters to participate, or fight a corner based on the numbers.

 I think this is a rubbish idea. First, we are already talking a lot about the deficit and the level of national debt. But second, the level of debate in the US on these issues rarely rises above ‘deficit and debt bad’.

The levels of public spending, the burden of taxation required to fund that spending and the appropriate role of the state – these are the big questions of political economy. In that debate the level of the deficit, or the size of the public debt, in any given year are of secondary importance.

I fear that if we were to place deficits at the front and centre of political debate that debate would quickly follow the American example and descend into petty point scoring as politicians boasted about who could run the lowest deficit or the highest surplus, who could pay down the most debt. This debate would risk missing the forest for the trees. What actually matters is the level of employment, the cost of living, the distribution of income, the availability of services and level of taxation. Whether or not the deficit is 3.5% of GDP or 5.5% is hardly the key issue.  

If the answer is ‘we need American style debate on the deficit’ then I’m not sure what the question is.


5 Responses

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  1. ydue said, on July 6, 2009 at 8:13 pm

    politicalbetting has gone dowhill, and fast – cf. predicting football fans will be outraged by footballers earning less, pointless references to expenses, considering Guido Fawkes a reliable source, whitewashing Guido’s comment box, and so on. In other words, it’s now fully integrated into the MessageSpace sewer. One-eyed economic analysis and taking Fraser Nelson seriously is just part of the necessary logical progression.

  2. rommeldak said, on July 6, 2009 at 8:28 pm

    Well said. You are dead right that the so-called discussion of debt and deficit in the US “rarely rises above ‘deficit and debt bad’.” The bigger problem, of course, is that that’s dead wrong. During WWII, the US ran its debt to 120% of GDP and lowered unemployment to record lows (less than 2%). And, of course, that tremendous debt was an incredible burden on the next generation…NOT! The 1950’s continued to witness strong growth, low unemployment, and a steady decline in the debt.

    This is very difficult to explain to the general public because they, quite naturally, think in micro terms and not macro terms. To them, as a single economic unit in a big macroeconomy, debt is bad. To the macroeconomy as a whole, it’s a book keeping issue.

    • ydue said, on July 6, 2009 at 8:36 pm

      Further to rommeldak’s comment, as Dean Baker regularly points out, it is possible to run a deficit and reduce the level of debt, but pointing that out is only going to get mockery from right-wing chucklewits. More importantly, when do we get our own Dean Baker in the UK?

  3. Paul said, on July 6, 2009 at 9:17 pm

    ‘ere John (Rommeldak)

    You’re not still in London on Saturday are you? There’s a conference both Duncan and I (I think) will be at which we think you’d enjoy/contribute to really well.

    Paul (bickerstaffe record)

  4. Rosa said, on July 6, 2009 at 10:30 pm

    America has to decrease its national debt or our presence as a world power could quickly decline. Here’s what a guest speaker on CNBC had to say, “Instead of the government making a smooth transition by lowering the level of debt, because really the monkey on our back is the debt. We have a huge amount of debt. Instead of the government doing that, now they’re trying to look at stimulus plans and things that may inflate assets. That may run out of control.” http://www.newsy.com/videos/the_burden_of_debt

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