The ‘Deficit’? Which deficit are they talking about?

Let’s get something straight: there is no such thing as “The Deficit” there are deficits, and the politicians of the three main parties are all guilty of presenting an image of a single monolithic deficit that must be “brought down” at all costs. This is to support their cock-eyed view that cuts, particularly to social security benefits are necessary, while tax cuts for the rich will somehow stimulate the sluggish (some would say moribund) economy because the “wealth” will miraculously “trickle down” to those below. Not even the very right-wing George H W Bush believed that and derisively referred to trickle down (or supply side) economics as “voodoo economics”.

Our imperial masters will confuse, sometimes deliberately, “The Deficit” with “The Debt”. Again, there is a debt and it’s called The National Debt, which is accumulated through government spending on wars, for example.  The current national debt has been around since the end of the First World War. Politicians, many of whom are not economists, will often claim that “The Debt” also needs to “paid off” and will again cite government spending on social security as the main culprit of increased borrowing. This is economically illiterate bunkum. Yet, we are now in a situation where, once again, the level of the nationals debt is set to be increased by a new war in the Middle East. Yet, the government can’t find money for the NHS? Please, pull the other one.

When politicians talk about The Deficit, most of the public haven’t a clue what it means and this suits our imperial masters well, for they can use this magic phrase to rebut any criticism of austerity, privatizations and cuts to public services. I have lost count of the numbers of vox pop interviews where some member of the public has quite literally repeated verbatim the spiel of some government minister or other. “The country is broke and we need to pay our debts” some ignoramus will opine, while another will claim “There’s no money, we need to cut something”. The United Kingdom is the seventh richest country in the world and there’s no money? Come off it.

There are five kinds of deficits. Let’s deal with each one in turn.

First, there is the structural or budget deficit. This is when the government is spending more money than it receives. Usually, governments receive money through taxation. If a government is cutting taxes for billionaires and faceless corporations, then it isn’t making any money. It’s simple logic. The other way a government can raise money is to print the stuff but quantitative easing, as it’s referred to, has only benefited the same people who got us into this mess: the bankers. The government could remedy this by taxing the rich more. Whenever this idea is proposed, our imperial masters respond by telling us this will hurt the “wealth creators”. These people only create wealth for themselves. They don’t even work for it. They get other people to do the work.

Work is over-rated. Hard work more so.

The cyclical deficit refers to, as its name suggests, the economic cycle and is caused by downturns in output. Low levels of business activity and high levels of unemployment are the manifestations of this kind of deficit. Some economists disagree over the terms ‘cyclical’ and ‘structural’ and claim that there’s no difference between the two.

A balance of trade deficit occurs when imports outstrip exports. If you’re not making and selling enough stuff to other countries but are buying in loads of stuff from overseas, then this is what happens. Every outgoing Tory government since 1964 has racked up a massive balance of trade deficit for the incoming Labour administration to deal with.

Finally, there’s the balance of payments deficit. This is related to the balance of trade. A balance of payments deficit is created when the imports of goods, services and investment income exceeds the exports of the same things. In 1974, this led to the Sterling Crisis of 1976.

So what is the national debt? Well, this is when governments borrow money from the central bank (In the case of England, this is The Bank of England), which is a private concern and not owned, in spite of its name, by the state. Governments borrow by issuing bonds, securities and bills.  In the United States the level of debt to GDP is 73.60%. In the UK, it’s 88.7%. Does this make a difference to you or I? Well, not really, since the government can borrow money at preferential rates of interest. The Tory-led government claims that it’s “reducing borrowing” but it hasn’t. It’s actually borrowed more money  than the previous government. Furthermore, all governments borrow money. It’s a fact of life.  The Tories’ continual claim that they’re borrowing less (sic) is a lie. In fact, most people don’t even know how much the national debt is, yet Westminster politicians will usually pretend to know when they’re busy conflating the national debt with ‘The Deficit’.

I realize that I have simplified these terms without going into heavy economic theory, but this is how deficits need to be explained to the public.

Do I expect our imperial masters to come clean on government finances any time soon? I doubt it. These people can’t even lie in bed straight.

Here are more blogs about the government’s deficit lies.

Finally! Exposed! The Deficit Myth! So, David Cameron When Are You Going To Apologise?

The Great Debt Lie and the Myth of the Structural Deficit

Another Cameron myth: the coalition hasn’t reduced the deficit by “a quarter”

 

 

 

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13 Comments

Filed under Conservative Party, Cuts, Government & politics

13 responses to “The ‘Deficit’? Which deficit are they talking about?

  1. The primary deficit (which is what most people mean when they refer to “the defecit”) is simply.
    Government Spending – Tax Revenue
    http://en.wikipedia.org/wiki/Government_budget_balance
    It is a single monolithic thing but it is not an abstract idea because…. If the defecit increases this eventually creates more government debt unless the government is prepared to default on its fiscal obligations which would seriously damage its credit ratings increasing the volume of interest it pays servicing the national debt.

    While defecit isn’t debt its self it creates more debt and not being seen to pay it off suggests to the markets that in the long term the government’s fiscal situation will just deteriorate further and further. It’s a confidence thing. The danger of having a large defecit is that it decreases the trust that the UK government will pay out on the gilts that make up its debt. This affects the UK credit rating. And that affects the cost of servicing the government debt by raising or lowering the interest rate which the government has to pay on its debt. So talk of the government losing it’s AAA credit rating may not sound a big deal but it is because it means we have to pay more tax to service the existing debt because the interest charged on it increases. The nightmare senario is that the UK credit rating falls lower and lower so we spend more and more paying interest on our existing debt. How fast or slow you need to reduce the defecit and ultimately the national debt is a matter of considerable debate because no one knows the answer to that.

    However, here’s an analogy. I have a bank account and a credit card. At the end of the month sometimes my bank account goes overdrawn and so I use my credit card to borrow money. The defecit is a kin to the national yearly overdraft and the debt is a kin to the national credit card. If there’s money in the account at the end of the month that’s a surpless and can be used to pay off the credit card.

    However, it’s a bit more complicated than that of course … for example sometimes turning a bit of expenditure into debt can be prudent long term because if you have a favourable interest rate and inflation rises then the debt can become devalued over time. And stuff… paying off the debt too quickly can also be counterproductive because it decreases the number of public sector jobs which causes a lack of stimulus in the economy – meaning that although you decrease public spending you also decrease tax receipts and the saving is negated by a lack of revenue.

    That’s how I understand it anyway but in case I’ve oversimplified it
    http://www.bbc.co.uk/news/business-25944653

    • As I point out in the blog, there is more than one deficit. The ‘deficit’ that our politicians constantly conflate with the national debt is the budget (or structural) deficit. Governments raise money in two ways: the first is through taxation and the second is to issue bonds. It is the former that relates to the budget deficit. If the government hasn’t raised enough money through taxation, then what does it do? It has to borrow or implement what are commonly referred to as ‘stealth taxes’ (increasing VAT is one way). If this government was serious about ‘paying down the deficit’, it wouldn’t keep cutting taxes for its millionaire chums.

      There’s no mention of the Balance of Payments deficit in that article. This country once used to make things. These days, it makes nothing, Of course if misery and despair could be reified, it could always export them.

  2. Apart from the fact I cant spell deficit … what’s misleading is that when the government talk about paying off deficit that’s of course nonsensical as each year’s deficit turns into a bit more of the national debt. What of course politicians mean by paying off the deficit is that they are trying to reduce next year’s deficit. I think…

  3. Pingback: The 'Deficit'? Which deficit are they talking a...

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