Econ 101 and a half!

A useful nudge in the ribs to me and a delicious kick in the nuts to that pip-squeak, Johann Hari, by Peter Hoskin in The Coffee House.  Hari, who on the basis that he likes to give the impression that he is so brilliant he knows everything about everything, has been caught out confusing national debt with national deficit.  Thus, he wrote the following:

"Here’s the lie. We are in a debt crisis. Our national debt is dangerously and historically high. We are being threatened by the international bond markets. The way out is to pay off our debt rapidly. Only that will restore 'confidence', and therefore economic growth. Every step of this program is false, and endangers you."

I, myself, being an ignorant and careless fellow occasionally fail to make clear the difference between debt and deficit but then, no-one comes here for strict, analytical and logical thought - er, you don't really, do you? - and anyway, no-one's mind is ever changed by what they read at Duff & Nonsense.  However, Hoskins makes clear the difference between these two terms - and it is an important one:

The essential difference between the coalition's fiscal plans and Labour's is nothing to do with debt at all. It's to do with the deficit, aka borrowing. It is the deficit that one side hopes to reduce quicker than the other. As for the debt — the sum total of all our borrowing that we have yet to pay off — that would rise by most measures, whichever party was in power.

In other words, the debt is the sum total of what we have borrowed up to now and the deficit is the year by year excess of spending over income which can only be met by, yes, more borrowing.  This essential difference is of critical importance in the current debate betwen Osborne and Balls, and the likes of Johann Hari who writes:

As a proportion of GDP Britain's national debt has been higher than it is now for 200 of the past 250 years.

Seductive words akin to the much over-used line us chaps deployed in our 'youf': "If you let me put it in I promise not to move!"  Here is a diagram showing the year by year borrowing, that is, the deficit as a percentage of GDP:

Now you can see why Johann Hari should not only go to SpecSavers but also take a course in Economics.  As Hoskins puts it:

This is what worries the international markets: the constant borrowing on top of borrowing on top of borrowing. The very fact that last week's Budget contained higher borrowing forecasts was enough to provoke grim warnings from the credit rating agencies.

But according to the gospel from Hari, debt and borrowing are 'A Good Thing' because "debt is part of the cure"!  A couple of posts down I pointed out the illogicality of anarchists demonstrating against government cuts.  Today I would ask anyone of a socialist persuasion to look at this diagram and ask themselves whether they are happy to spend £62.4 billion(*) on money-lenders as compared to other people like, for example, teachers?

(*) Corrected error as pointed out by one of my assidiuous commenters below.  Thank God some-one is paying attention!

Comments

[david morris]

A pedant writes

"A cracking post, marred only by the error in the last line of text. £62.4mil should read £62.4bil (as per the pic.)"

The Hari "error" though is a deliberate attempt to muddy the waters, as was the guest speaker on the Today programme (Zadie Smit). Relevant Cards marked.

Kind regards

PS Hope you haven't given up on BoardWalk, it's taken some time but the story lines are now coming together.

[dearieme]

Hari reminds me of Private Pike. "Stupid boy!"

[David Duff]

Ah, glad you spotted that deliberate mistake, Morris, I was testing you there!

(All spoken in the tones of Capt. Mainwaring of Dad's Army, as per DM's comment below.)

And, alas, no, I gave up on Boardwalk Empire.

[Dom]

Tim Worstall also has an interesting take on Hari:

http://timworstall.com/2011/03/29/johann-hari-tries-economic-history/

[David Duff]

Dom, thanks for that link and especially the comments thread which was very illuminating.