Entertaining in small doses, but not all that bright and ultimately tiresome.
Justin Forsyth suggests that the David Cameron should make personal attacks on the Prime Minister indirectly by using Shadow Cabinet proxies to do his dirty work and thus influence the media agenda.
Doesn’t he understand? That’s what his boss is for. What’s more, they don’t have to pay Fraser, he does it for love.
On the substance of Fraser’s claims, let me just say two things.
First, what Ed Balls said was “We have acted in the downturn, that will mean that the economy is stronger, we’ll have less unemployment, less debt.” Balls is saying that we generate less debt by shoring up the economy now, leading to lower unemployment and stronger growth figures, which in turn leads to less future debt overall. In other words, if we hadn’t acted, growth would be worse, the future public finances worse and there’d be less money to spend.* Apparently this statement of the countercyclically bleedin’ obvious is a “lie”.
Fraser Nelson takes this rather unremarkable statement and combines it with a separate quote about future budget projections to turn it into a claim that debt is coming down in the short term, which duhh, it isn’t, because we’re in the middle of a recession and are spending money to get out of it.
When it is pointed out to him that the Budget does in fact set out a projection that reduces debt post 2013, he says, oh, but that’s just a projection (aren’t they all?) and anyway that it concerns debt as a percentage of GDP, not real debt. Which is where I stopped taking the discussion seriously.
Someone who regards not understanding the difference between debt and debt as a proportion of GDP as a badge of honour, not a mark of shameful ignorance, needs to be pitied and looked at with compassion.
Debt matters as a reflection of your ability to pay it back. If I owe a million pounds, it’s a crisis. If Bill Gates owes a million pounds, it’s an accountancy error. The same thing applies to nations. A country with a growing economy and growing tax revenues can service more debt. Debts that would force Henry VIII to nationalise the monastries are trifling to us because our GDP has grown.
Failing to understand this marks a journalist out as a numbskull, not a populist hero. It’s not even that hard to relate to day to day life. Mr F Nelson is political editor of The Watcher. He earns £50,000 and has a mortgage of £200,000 with repayments of £12500 a year. He has a debt to annual income ratio of 400%! Debt repayments take up a quarter of his income! Eeeek!
Fortunately, the next day he is made political adviser to the leader of the keepthingsthesame party at a salary of £400,000. He now has a debt to annual income ratio of 50%, and the cost of servicing that debt is a tiny 3.125% of his annual income.
Of course, As Fraser makes clear, no sane person would consider moving to a nicer house and taking out a larger mortgage under such circumstances, because their debt would increase. It’s such a shame debt ratios aren’t useful in these calculations, because some heretical policy wonks think our hypothetical Mr Nelson might have been able to buy a nicer place for the little Nelsons to grow up in. The fools.
As it happens, the treasury projects that debt as a ratio of GDP is projected to come down after 2013/14. Personally, I don’t set too much store on this because I think a) If we recover quicker in the next two years the stabilisers will reduce giving more room on debt sooner than that and b) the costs of Bank rescue will come in lower than the Treasury projects now.
So I don’t think any projection up to even 2011 is that worthwhile. Which is one of the many reasons I’m glad I’m not a minister. For some reason our politics is obsessed with projections and forecasts when we should be obsessed with growth. I might be wrong about future spending. In fact, I probably am. But the debate about why I’m wrong is the important one, not the parsing of 5 year projections.
So I say what matters is what Ed Balls was talking about in Fraser’s initial quote: How we get the economy growing quickly so we can pay down debt and improve services. Now, the Tories fundamentally disagree with the government about how to do that, and that is an interesting argument and one I wish the Spectator was interested in. However, they seem more excited by spreading memes and playing quote gotcha.
PS. How come I don’t get cabinet members phoning me up, eh? Leaves me feeling all neglected, it does.
*Balls continues “Therefore we will be able to spend more on schools and hospitals. The Conservatives have opposed these plans, the national debt will be higher with the Conservatives.” which makes it even clearer that Balls is talking about how the Conservative opposition to fiscal stimulus and economic support would lead to lower growth and more unemployment, leading to more debt and less money for services.
20 Comments
June 30, 2009 at 8:04 pm
Tell it like it is Hopi. This kicking and screaming at Balls’ independent genius (although, obviously it doesn’t take a genius to work some of this out) is all self-deprecatory.
June 30, 2009 at 8:25 pm
It’s lonely in here. The thunder of supporting comments is deafening.
Firstly Hopi your complicated explanation of why Ed Balls is telling the truth shows why he is a liar. He could say ‘debt is going up’ which it is. I admit hypothetically (trusting the ever reliable treasury figures) that debt ratio may go down. But the provable absolute is true. Debt will go up.
The man on the street understands debt as an absolute. If I owe £100 and borrow another £100 my debt has gone up. My ability to pay it may go up, possible promotion or overtime, but these are hypothetical, and is better described as prosperity. But if Balls had said what he meant , more prosperity, I imagine he would have been laughed at or worse in these times.
On top of that if Balls hypothetical future growth (which he is basing less debt on) is good enough to ensure spending increases and less debt, then why no comprehensive spending review.
Next. How does the tories opposing the stimulus mean that they will make more cuts. Another Nu-Lab fake comparison. We supported a stimulus and will spend it thus? The tories didnt want to do it what will they cut? Absolute rubbish. Your last paragraph proves your illiteracy. The government has commited to a stimulus so any comparison is fake – it is like saying that they would arrive in government and start knocking down newly built schools just because they didnt agree with part of a budget. Never going to happen.
If you would like a call from a minister then I suggest holding the government to account. Heres one you could write about. IFS states that if Andy Burnham and Ed Balls statements protecting their departmental budgets are to be believed then 13.5% cuts , sorry , tough decisions will need to be made by labour on their own figures. If Brown so trusts this authority to spout out 10% tory tough decisions, sorry, cuts every week then he should have an answer to that.
Personally I think he is banking on those magic beans again.
If you come up with some long statement again to defend the indefensible then you will be in the realms of the long johns. And any argument should benefit from the shoe on the other foot. If the tories were claiming the above, I am sure you would not put up such an eloquent defence.
June 30, 2009 at 9:35 pm
I don’t know quite what to say to someone who writes seven paragraphs of comments then chides me for make long and complex statements.
The “man on the street” is considerably brighter than you give him credit for. That’s why the man in the street understands complex debt gearing techniques like mortgages, and gets that they can afford better houses when their income goes up.
As for the stimulus, if you want an explanation of why opposing stimulus as the Tories would, would lead to cuts I can shorten my response to one word.
Ireland.
If you want to understand why cutting spending in the early stages of a recovery from deep recession is a bad idea I can give you one date.
1937.
Simple enough?
June 30, 2009 at 10:23 pm
I’m sorry Hopi but you’re way off base on this one. Only this morning you were decrying the ‘man in the streets’ level of understanding of these issues – but now that Ed Balls honesty is in question you’re blithley suggesting that the distinction between debt & debt ratios is, like, SO obvious – which is it?
July 1, 2009 at 10:39 pm
I am sure the man in the street is thinking twice about the cleverness of debt gearing techniques at the moment. Never mind there is real help now with the ‘real help now’ campaign – although helping six families of the promised 6000 is probably something one CAB officer would do as routine. Lets make a song and dance about it.
I don’t know how you can support Brown. I mean today he tried to say it was conservative policy that unemployment would rise – what an idiot.
Why are cuts so bad anyway. I’ve had a pay cut, and have had to re-assess my outgoings. The government is getting less in tax – why shouldnt they. As a socialist i am sure that you think that throwing money at things solves problems, but in life things dont work like that.
Anyway – we will see cuts whoever is in power. Labour just call it tough decisions, or reprioritising or something. I would have a lot more respect if they just came out and said we dont believe in cuts – as you obviously don’t – therefore we will be raising taxes. I think it is inherently deceitful to imply that spending can continue at current levels without such measures.
And you misrepresent my point about stimulus – it has already happened now so it doesnt matter who opposed what – it is now part of public spending and we can;t warp back in time and do things all over.
June 30, 2009 at 8:45 pm
Ed Balls is like Marmite, except that a higher proportion love Marmite than love Balls. Never mind though, eh?
But Fraser Nelson is a well known economics and Treasury know nothing and he doesn’t even know the difference between a lie and an opinion he disagrees with, or a lie and a hope, or a lie and a projection.
Clearly with no paying down whatsoever and healthy growth the debt expressed as a % of GDP tumbles. And clearly too with lots of paying down and cuts fuelling negative growth it is quite possible for the ratio to increase.
And then there’s exchange rate too which could change things dramatically – either way – without a penny of debt being paid down or any change in physical production.
The Tories know this. We know this. Now we just need the MSM to cotton on and ask some harder questions of the men and women who would be kings and queens, the pretenders to the throne.
June 30, 2009 at 9:53 pm
Nelson is bright and knows his stuff, and does score some palpable hits (Balls has not exactly covered himself in glory today), but he’s not a complete stranger to slipperiness himself.
“Balls said that my explanation is ‘economically illiterate’ and that every public finance geek in the world thinks of debt as a ratio of gross domestic product. Quite possibly, I replied, but every voter in Britain – other than those who work for the Treasury – thinks of debt in very clear terms.”
Translation: “Voters, including readers of my blog, are not as clever as me and I’m going to make no effort to explain something as hard as debt affordability to them”.
Of course governments don’t have “special magic debt”, as Nelson says Balls must think, but they do have near-total immunity to the kind of collapse in income that individuals suffer when becoming unemployed – and they also have potentially infinite lifespans in which to pay off debt.
Finally, I’m struck that Nelson thinks it’s gross dishonesty to talk in cash terms when debating spending, but that it’s simple common sense to talk in cash terms when debating debt.
The man has a weakness for Brownies.
June 30, 2009 at 11:56 pm
Liam, I think you misunderstand my argument about the debate on economics – my problem is that the British debate is full of the kind of wilful ignorance that Fraser employs here to make a very tendentious claim and then use his pulpit to spread it aroud everywhere.
Why do we usually use debt ratios to GDP as the appropriate measure of debt? Because Government debt at the end of the second world war was over 250% of GDP. If Fraser Nelson’s “man in the street” view is correct then we haven’t improved our fiscal position at all since then – in fact, it’s got much worse!
But if you don’t take my word for it, take the IFS’s. P3-5 of their paper “Measuring the UK fiscal stance since the second world war” explains why looking at Debt as proportion of GDP is the correct measure of the strength of the government’s finacial position.
http://www.ifs.org.uk/bns/bn26.pdf
July 1, 2009 at 4:44 am
I think I understood your point about the level of debate but you’re not applying it consistently – if it’s legitimate to accuse Fraser of ‘wilful ignorance’ in making his point then it’s equally so to accuse Ed Balls of a ’studied ambiguity’ when making his. Neither trait advances the level of debate. That you support the policy positions of the latter doesn’t make his approach OK.
And it doesn’t actually matter that using debt as proportion of GDP is the correct measure of the strength of the government’s financial position – Fraser doesn’t deny that at any point anyway. You’ve went into detail on this site before about how it’s legitimate for Labour to label smaller increases as cuts – to then call out Fraser on using semantics to land a few blows is a bit hypocritical surely?
July 1, 2009 at 1:27 am
Ask a recent graduate how much their student loan is.
They’ll say it’s “£15000″, not that it’s won’t say “it’s 70% of my net income”.
Ask a homeowner how much their mortgage is. They’ll say “£100k”, not “four years’ salary”.
I accept that “government debt as a percentage of GDP” is often quoted as “government debt”.
However, your assertion that in “real life” people think in relative terms is just not true.
Most will UNDERSTAND your arguments about debt in relative terms, but they THINK in absolute terms.
July 1, 2009 at 2:29 am
Do you really think spending money to get out of a recession works? we spend BILLIONS a day/week/month/ and every year, you think this will get us out of recession? how did we ever fall into recession spending vast sums then? the logic doesn’t make sense. go and study austrian economics. GDP has grown but that growth was based on a boom engineered by Brown and Bliar, it was fake and now GDP is collapsing faster and farther than anyone can predict and yet the government isnt reducing its debt requirements, infact their debt projections are increasing… and you also assume the markets will provide our spendaholic government with this money; they won’t, leaving us with nothing and exposing as the bankrupt nation we are. then Mr. Balls will just demand the money be printed by the Bank of England, like his colleagues in Zimbabwe because the international markets will not fund a basket case with collapsing GDP, or they will demand penal interest rates and the rape of our citizens for the next 50 years. we are spending and borrowing more than we did in the 40’s when we were fighting for national survival, now we’re not fighting Nazi’s exactly, we’re wasting money on hospitals, does this ever seem illogical to the left?
July 1, 2009 at 6:03 am
Hopi I understand what Balls was up to and I understand what he meant to do. It was a deliberate attempt to mislead , no-one gives a flying fuck what his 2017 projections of growth might be and in any case the whole framing of this post ,which assumes high spending is of itself a good thing for demand ,is also a lie .A lie , I might add ,that despite my poiting it out you continue to repeat.
If borrowing was increased to allow tax cuts you woud have a better point , if it all went into capital priojects you might have some point but as we know the vast and overwhelming majority of the splurge is sheer waste aimed at one thing the General Election.
After the general Election you will see that there will indeed be cuts . Will you then admit that you are lying now and ,by the way, are you still telling people that there were no cuts in the last budget ? Or have you accepted that was a lie ?
July 1, 2009 at 7:22 am
So let me get this straight. Massive state spending over the last decade must be maintained in order to generate faster growth in the future. No word on how to deal with Brown’s structural deficit. Nada. Zilch.
Banks paid (from memory) something like a third of corporation tax in 2007. There are banks like Merrill Lynch who will pay NO CORPORATION TAX FOR A DECADE as a result of the losses they sustained. What about income tax returns from people who you probably think shouldn’t be paid as much as they are? Tax revenues are going to bounce back are they?
That’s before we question whether continued spending on diversity outreach coordinators should be maintained at current levels, pretending Labour’s client state is actually about public services.
Your post is feeble apologia for economic incompetence.
Must do better. D-
July 1, 2009 at 8:12 am
my problem is that the British debate is full of the kind of wilful ignorance that Fraser employs here to make a very tendentious claim and then use his pulpit to spread it aroud everywhere.
Hopi that is just ridiculous . Everyone in the world knows that the future is one dominated by the need to reduce deficits and address the world war scale debt we have . You cannot approach an election pretending its spend spend spend and by some absurd mis-use of semi digested demand theory claim this will also be NOT spending. It insults the intelligence and it equally insults the intelligence for you to claim you do not know what Balls was up to.
Try to get out side your trench war fare state of mind and imagine the Conservatives were promising tax cuts as well as paying down debt with no untoward effect on the Public Sector .What would you say to that which , incidentally would have a far better claim to be promoting growth than the continued direction of resources to the least productive part of the economy ?
What on earth would you make of a Conservatives Government so utterly contemptuous of the electorate so mendacious and desperate as that ? I think we both know the answer its no good being some sort of dupe foot soldier it does not even work in its own terms .
July 1, 2009 at 8:59 am
The action taken by the government was a discretionary fiscal stimulus which is small relative to the size of the fiscal deficit and was planned to be reversed next year.
I doubt, though, that there is any macroeconomic model that shows that a discretionary fiscal stimulus reduces government debt. This would imply that the stimulus was self-financing. If only.
July 1, 2009 at 9:40 am
More importantly – why does Fraser Nelson have such an odd accent?
July 1, 2009 at 3:27 pm
“why does Fraser Nelson have such an odd accent?”
He sounds like a cross between Michael Gove and Malcolm Rifkind.
July 1, 2009 at 5:10 pm
Aren’t we talking at cross-purposes here?
Hopi is certainly correct to say that what matters is the ratio of debt to GDP. And it’s perfectly plausible that a ratio of 70-80% of GDP is quite sustainable.
However, Balls told the Today programme that the Budget sees “national debt coming down.” That’s plain wrong. And Balls’ claim that he meant the debt-GDP ratio is just wibble. If he meant that, he should have said that.
The hypotheses “Fraser Nelson knows nothing about economics” and “Brown and Balls are lying” are not mutually exclusive.
July 1, 2009 at 10:48 pm
Hopi
If Fraser Nelson knows nothing about Economics then it is worrying that our Chancellor, sorry, Minister of Kinderheit Verbesserung finds time to phone him up to berate him for pointing out he is wrong.
Just admit it. He was just doing what any minister would do and putting the best possible light on figures. Unfortunately he moved from interpretation to fabrication. Just imagine Tony Blair with the vast majority of crap weighing down government at the moment – he would have laughed it of, and that would be that.
July 4, 2009 at 10:34 pm
I think you mean James Forsyth, not Justin Forsyth – that really would be a story.