Tuesday, 3 January 2012
Want to understand public debt? Look westwards
Sometimes you have to look at someone else - or how they see you - to perceive your own true situation.
Never is this truer than in the case of UK public debt. I've been banging on for years about the low levels of our debt stocks when seen in historical perspective. The fact that someone will always buy the debt - especially given the unattractive nature of other investments. The danger of cutting too much because we're spooked by a load of big-seeming numbers.
But the really big beasts of the economic jungle from across the Atlantic - such as Paul Krugman - of course say it better. Americans usually do.
The US has a much worse debt-to-GDP ratio than we in Britain do. But yet consider Krugman's case for ignoring that situation - at least in terms of government spending. It's pretty compelling. Americans owe most of that money to themselves (above). They are extremely unlikely to default. Even modest tax rises would dig them out of the bottom of the hole they've been digging. And overall, modern governments' capacity to raise money - including that of the UK state - is now much more advanced than when our debts were higher.
Well, I never. Or - I told you so.
So public debt isn't something to be laying awake at night about after all. Unless you want people to believe that public services have to be slashed to ribbons, that is. Or if you're Greek or Italian - states which really do have critical and stability-menacing debt positions.
Happy New Year! Nice to start on a positive note for once...