Debt or No Debt

When the UK Prime Minister urges everyone to clear their debts and stop borrowing, AND pleas with the banks to lend more money, you have to wonder if David Cameron is clueless about the economy or he just assumes he can get away with spouting nonsense.

We need sensible borrowing
Borrowing when one has no way of ever paying the money back is never advisable. But borrowing to deal with pressing problems, to invest, to grow is a sensible course for individuals, businesses and governments. Without mortgage borrowing, only a tiny rich elite would own their own homes; without business loans, far fewer enterprises would be able to start up, let alone grow to expand their market share and turnover; and without government borrowing, countries would be stuck in the backwaters of under-development.

What is sensible borrowing?
The UK has for over three centuries borrowed substantially to ensure it has the capacity to grow as a strong country able to look after its citizens. In the last century, the national debt as a % of our GDP was continuously and often significantly over 50% from the First World War to the early 1970s, when it dropped and stayed below 50% through Conservative and Labour governments up until the global financial crisis in 2008. (http://www.ukpublicspending.co.uk/uk_national_debt_chart.html). When compared internationally, the UK debt (again as a % of GDP) was under the last Labour Government the lowest of all the other G7 leading industrial nations (ie lower than Germany, Japan, France, Canada, USA, Italy - http://news.bbc.co.uk/1/hi/business/8415703.stm).

So what has been pushing borrowing up?
With government investment in health, education and economic growth, the quality of life in the UK improved, while the debt level remained below 50% of GDP up until 2008. Anyone who claims not to know what happened in 2008 is either the perpetrator or victim of a political con trick. Bankers around the world had by then gambled away so much of their savers’ money that there was a real risk they would collapse, and that could have led to businesses being unable to borrow enough funds to keep going, and countless people losing their lifesavings. The Labour Government had to step in to save the country. By July 2009, the UK debt level reached 59%. But £142 billion of this was the cost of rescuing the banks, which meant the debt level without the bankers-generated crisis was 47%. For all the talk of billions of pounds in debt, the government’s underlying borrowing strategy was hardly out of line by any historical and international standard.

Have things got better or worse?
When the banks started to cut back lending in 2008, businesses found it more difficult to finance their growth, people with insecure jobs and worries about getting loans cut back consumption. The result was the beginning of a recession with the economy fast stalling. The Labour Government invested public funds to stimulate growth and by the time they left office in 2010, the economy was expanding again at a rate approaching 2%. Politicians from all sides around the world praised the UK strategy for its combination of public investment and sensible debt management. The Tory-led Government, however, for its own ideological reasons insisted that borrowing must be drastically cut regardless of the consequences, and its policies have by 2011 brought us higher unemployment and rising poverty, with the growth rate of the economy plummeting back towards stagnation (see: http://www.nytimes.com/2011/10/15/opinion/britains-self-inflicted-misery.html).

Time to back responsible borrowing
In the face of the incessant scaremongering about the UK debt getting out of control, it is essential to remember that during times of crisis the British government has always in the past responded with leadership and responsible borrowing to steer the country out of the storm. After the First World War, the debt level shot up to 100% of GDP and rose up to and remained at 150% through the 1920s. Following the outbreak of the Second World War, the debt level went up to 200% of GDP. Furthermore, even at that level, the post-war Labour Government recognised that it was a priority to rebuild the UK and it invested in the creation of the NHS and other public services for the benefit of all. The debt level reached 240% before 1950, and then steadily dropped to below 100% of GDP after 1960 when private sector growth was by then robust enough to drive the economy forward. Past UK governments had the courage to take on a high level of responsible borrowing to save the country from the Kaiser, the Nazis, and post-war squalor. The present government should not be paralysed by cowardice.

Cut out irresponsible borrowing
Alongside a commitment to responsible borrowing, we should of course expect the Government not to increase the national debt by draining public resources irresponsibly. For example, £10 billion can be saved if the Government does not spend £2 billion to reorganise the NHS to make it more vulnerable to profiteering; £4.5 billion a year to keep troops in Afghanistan; £2.5 billion in tax handouts to the richest corporations and individuals; or £1 billion on bombing a country which poses no direct threat to the UK or its neighbours.

What should be done about the real causes of the banking crisis?
Many people are so angry with the last Labour Government for failing to prevent the banking crisis that they are prepared to jump out of the frying pan into the Tory fire of cuts and prolonged recession. What they need to realise is that Labour’s true failing was not rectifying when they had the chance the Tory policies of squeezing society for the benefit of the super rich minority. First, the Tory deregulation of the banks, which made it possible for them to gamble away billions of pounds of savers’ money, should be reversed. Secondly, financial transactions should be taxed to control otherwise disruptive speculation and help reduced public sector borrowing (this would raise £20 billion even if it is levied at just 0.05%). Thirdly, the Tory fantasy of leaving people with below-subsistence pay to get by through unsustainable borrowing must be pushed aside with a fairer distribution of wealth (something welcomed by many rich people with a social conscience). Fourthly, the integrity of the public sector must be protected to serve the interests of the whole country in good times and bad, and not be dismantled to feed ravenous corporate interests which prioritise private gains over public wellbeing. The Tories will never change their spots, let’s hope Labour has learnt their lessons – for all our sake.