In particular, Mark makes a fair critical point in response. I’d said: “To run a modest deficit year after year during a period of decent growth and high employment… is risky.” Mark replies:
There certainly is a symbolic value to whether the budget is in deficit or surplus, but what really matters is that in the good times you should be ensuring you are in a strong position to deal with bad times. … If you are running a small deficit, the combination of economic growth and inflation can mean that the overall debt burden is still coming down.
Absolutely right. If the extra debt we take on in a given year is outpaced by the growth in nominal GDP, then the debt burden as a share of GDP will fall.
In my defence, that’s not what’s happened in recent years. Borrowing has been a bit too high for it to be compatible with overall debt reduction: public sector net debt as a share of GDP has grown every year since 2001/02.
But the fact that, from then to 2007/08, debt grew by only 6.8% of GDP as compared with annual deficits summing to 15.8% of GDP, illustrates that growth does indeed reduce the debt burden of new borrowing.
3 comments:
Thanks for those extra numbers Tom. I'll add in a link on my post.
Fear not!
http://www.ifs.org.uk/bns/bn26.pdf
As Sam Brittan pointed out it is better to borrow to keep people in useful work than to fight wars, and the UK did the latter to a far vaster extent, in terms of current GDP for WW2 than is now in prospect.
The UK is not a corner shop with an irate, all powerful bank manager as Mrs Thatcher believed and the tories like to imagine.
Do not panic. (Oh, you weren't . . ?)
I normally delete spam comments, but the placing of this one made me laugh, so it can stay.
Unless it starts attracting more...
Post a Comment