Saturday, April 2, 2011

Austerity and Lies

Things it is useful to know about our current economic situation:

1. Our current level of debt is not historically high - for 200 of the past 250 years our debt has been higher than it is now (1)

2. Our current level of debt is not high on an international scale - for example, Japan's debt is currently three times ours (1)

3. The financial crisis (bailout + falling tax revenue) is responsible for 78% of the deficit. Labour overspend accounts for 22%. (2)

4. The interest on the deficit is not going to foreign governments or investors. Only 30% of our national debt is held overseas, 25% of it is actually held by the Bank of England. (3)

5. The main justification for austerity is based on the figures of the 'bond vigilante' and the 'confidence fairy.' We are told we must pay down the deficit immediately otherwise the vengeful god of the bond market will drive up the cost of government borrowing, while the negative effect on the economy of slashing government spending will be offset by the confidence that is inspired by the government acting so responsibly and putting the balance sheet in order. According to Paul Krugman this is bunk: i) Bond vigilantes have been, throughout this crisis, 'invisible' ii) Confidence does not return on the basis of cutting deficits iii) There is reason to believe that economic stagnation is currently by far a greater concern to the bond markets than inflation caused by government spending might be. (4, 5, 6)

6. a) We are not Greece b) This is not the Second World War


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