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.