So the debt to GDP ratio is lower than many thought it was. Lower than ONS said it was in fact, as the FT highlights.
But the thing that the Financial Times does not note is what is most important about this. They correctly record that the figure that has been altered every time the data has been restated is not that for the supposed debt, but the figure for gross domestic product. It appears that we are hopelessly unable to get this, in itself nonsensical, figure right.
But, and this is my key point, there may be a very good reason for that.
The figure for GDP is always laden with estimates. It is riddled with assumptions. And the one thing that we know is that the assumptions used by the Office for National Statistics are cautious to the point of being absurd.
In particular, they ignore multiplier effects. When they record a great many types of expenditure, including much of that which the government undertakes, as well as investment expenditure, they fail to consider the consequences and benefits of what has happened. They believe that these sums are lost, forsaken and forgone when the reality is that they are incurred for future benefit, and, as this second chart shows, that benefit does arise and to a much greater degree than the Office for National Statistics ever thinks might be the case.
What is happening? It is that the ONS is persistently under-recording the creation of the literal stocks of well-being created by way of investment, mainly by public, but also some private, spending, with the result that they write off expenditure at the time that it is incurred and then appear to be continually surprised that later income is higher than they expected.
This is the real message that comes out of this chart when the finding is extrapolated appropriately. This is not the point that the Financial Times made about it. But the key issue is that the ONS is so blinded by its neoliberal assumptions, and its refusal to consider double entry when undertaking its accounting, and therefore the relationship between income and capital, and current and future returns, that it produces deeply misleading information, the consequence of which is that we all suffer excess downward pressure on government spending, quite inappropriately.
Well, that tells us. Except the FT tells us:
If the size of the economy in cash terms grows faster than forecast (which may be partly due to rising prices) and the amount of debt stays the same, then debt as a ratio of GDP will be revised down. This is what we’ve seen happen recently. On the other hand, if the economy grows slower than the forecast and debt is the same, then debt as a ratio of GDP will be revised up.
Reader, the size of the economy in cash terms did grow faster than forecast.
The stock of the debt does not rise with inflation. The size of nominal GDP does rise with inflation. What has been happening is higher inflation.
And what do we do when inflation rises, kiddies? That’s right, we reduce the size of the budget deficit in order to reduce stimulation of the economy thorugh fiscal policy. Yea, even in MMT we do that.
Nowt to do here with Spuds blatherings at all.
The debt to GDP ratio is 93.8%, up from 93.2% a year ago. Interest payments on that debt were £111.2 billion in the last financial year, more than we spend on education and nearly twice what we spend on defence. And we plan to borrow another £137.2 billion in the current financial year. Let’s not send out for hookers and coke quite yet.
As Argentina has recently experienced, when government spends more, whether fully funded or deficit or (gasp) surplus, GDP goes up. When government spending is cut, GDP goes down, making Milei look like a twit in the process. Moral, to make the economy look strong, borrow, borrow, borrow, and spend spend and spend! Nobody really pays attention to the worsening debt/GDP ratio, and few know how to discount it for inflation.
It shows the ratio of what is called UK gross national debt (but which is actually nothing of the sort because a significant part of the sum is always owed by the government to itself, and the rest represents deposits placed with the government not used to fund its activity) to GDP, which is the supposed measure of our national income.
economics 101 – because apparently UK government bonds aren’t sold to international buyers. Indeed this seems to be characteristic of his analysis. Any international element is beyond his understanding.
In particular, they ignore multiplier effects. When they record a great many types of expenditure, including much of that which the government undertakes, as well as investment expenditure, they fail to consider the consequences and benefits of what has happened. They believe that these sums are lost, forsaken and forgone when the reality is that they are incurred for future benefit, and, as this second chart shows, that benefit does arise and to a much greater degree than the Office for National Statistics ever thinks might be the case.
that’s right – all the DEI expenditure as well as that on Islam or LGBT Alphabet Soup is all likely ‘for future benefit’.. I’m sure we all feel reassured….
Any money spent on “Power Skirts” running DEI schemes is for our future DISbenefit. Women are (mostly) capable of achieving their targets without DEI intervention (maybe not in the Labour Party which has never had a woman leader or one from an ethnic minority).
Labour’s about to have a woman leader – as for ethnic minorities, do gingernuts count?
Correct. In Spud world there is only Spud world and no bonds or any other economic tools leave or enter Spud world.
Disappointing: I suppose that means he can’t ramp up the printing press just yet.