Busting the single narrative

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Busting the single narrative

• The debt crisis as just another story
• or
• Why are we prey to a single narrative?

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This was ON Andrew Marrs show
We were on the brink of bankruptcy
You clearly need to make the savings, the cuts
and raise taxes...
3
Professor Joseph Stiglitz, Nobel Prize For
Economics In 2001, Daily Telegraph 08.09.10
The Chancellor has exaggerated the sovereign
risks that are threatening the country.
Professor Christopher Pissarides, Nobel Prize
for Economics in 2010, Daily Mirror 09.01.11
"I think it is likely that the economic downturn
will last far longer and human suffering will be
all the greater."
The best guess is that Britain in 2011 will look
like Britain in 1931, or the United States in
1937, or Japan in 1997.
Professor Paul Krugman, Nobel Prize for
Economics in 2008, New York Times 21.10.10
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You can only understand how
BIG
debt
is
when you compare it as a
percentage

• of GDP

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But what is GDP?
GDP
Consumer spending

Business Investment

Government Spending

International Trade income

• The GDP for 2010 is
• 1.435 trillion

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National debt

• Our debt is higher than its ever been

(Coalition Government)
7
...The Maastricht Treaty EU limit on debt

• 60 of GDP

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Our Current debt GDP ratio

• 64.6

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IF YOU DEDUCT WHAT WE GAVE BANKS, debt is EVEN
LOWER

• UK net debt is 952 bn
• Excluding Financial sector intervention, debt is
  845 bn
• Or 57.1 of GDP!
• Source Office National Statistics (November
  2010)

This includes 100bn of the banks debts that
is now UK Government debt
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Our debt is historically low
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....our debt is low compared to the rest of the
world
UK 65
CANADA 81
GERMANY 72
FRANCE 77
USA 95
ITALY 119
PORTUGAL 87
GREECE187
SPAIN 70
JAPAN 200
Source CIA Factbook
Source CIA World Factbook
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The deficit

• The Deficit is caused by overspending

(Coalition Government)
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THERE ARE 2 SIDE TO deficit
INCOME Mainly taxes

• SPENDING
• Public services
• Investment
• Debt payments

Government
Is spending too high or income too low?
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Growth and deficit are linked
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There is a tax deficit

• The UK TAX take 1995-2010

• Without the recession tax revenues should have
  been 100bn more than today.

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GROWTH reduced the deficit
Oct 2009 to March 2010
Deficit
165bn
22bn
145bn
Growth
1.5
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The deficit

• Interest repayments are higher than ever

(Coalition Government)
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GOVERNMENTS ALWAYS BORROW
Conservative Government
Source Public Finances Databank, ONS
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So why pay off the deficit over 4 years?

• Our Borrowing is cheap, mainly from the UK and
  can be repaid over 13-15 years

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SERVICING THE DEBT.

• The Thatcher government paid the equivalent of
  174m per day

Debt Interest Payments Debt Interest Payments Debt Interest Payments Debt Interest Payments Debt Interest Payments
1981 1996 2006 2011
Payments(bn) 13.2 26.7 26.2 43.3
As of GDP 5.15 3.41 1.97 2.84
www.ukpublicspending.co.uk
Thatcher Government
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The deficit

• We have to make cuts

(Coalition Government)
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LEVY TAX..
Is THIS where the deficit is?? We dont pay
enough in tax to cover what we spend. Source -
Eurostat newsrelease June 22nd 2009
Tax as a proportion of GDP (2007 - ) Tax as a proportion of GDP (2007 - )
EU 16 40.4
UK 36.6
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SINCE 1975 we have replaced direct with indirect
taxes
High tax rate
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The UK is now one of the MOST UNEQUAL societies
in the OECD
THE GINI CO-EFFICIENT UN MEASURE OF INEQUALITY
Inequality
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The deficit

• What really caused the deficit?

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Lets not forget whos to blame

• although the causes of the crisis may have
  been rooted in the financial sector, the
  consequences are affecting everyone, and will
  continue to do so for years to come.
• (Mervyn Kings Address to the TUC conference
  15.09.10)

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how the banks affect our gdp..

• Increasing or reducing the supply of money into
  the economy through household and business
  lending artificially inflates or deflates our GDP
  i.e. Banks manipulate the flow and quantity of
  money
• EXAMPLE in the 2000s banks pumped between
  10-14bn into the economy every year through
  housing equity withdrawal .
• Since 2009, banks are refusing to lend and have
  sucked 15bn out of the economy per year
• (Source of statistics Bank of England)

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Growing influence of finance
The contribution of sectors as a of GDP
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Re-Balancing the economy
No
Yes
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So do we need cuts?

• Debt is low compared to our history and partner
  nations
• Growth plays a key role in reducing the deficit
• If tax is lagging behind spending, why not borrow
  short term to encourage growth?
• What would 3 per year growth for 5 years do to
  the deficit?

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SO What is this a crisis of?

• National debt? NO
• Current account deficit? Depends on your
  values - its political
• Economic governance? YES
• Employment? YES
• Banking? YES
• Democracy and public debate? YES

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OUR SOCIETY IS MORE THAN OUR ECONOMY!

• The gross national product does not allow for
  the health of our children, the quality of their
  education, or the joy of their play.
• It does not include the beauty of our poetry or
  the strength of our marriages the intelligence
  of our public debate or the integrity of our
  public officials.
• Robert Kennedy, 1968

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Economyths prepared by

• Barry Kushner barry_at_blueurbansky.com
• Saville Kushner savillekushner_at_hotmail.co.uk