Should we worry about high government debt? | IFS Zooms In

[@stephfoxwell4620]

We've had a Government debt for 330 years. It has averaged 92% of GDP. Peaking at 248% in 1946.

[@btc9920]

But we have had full mad fiat money since 1971, totally different.

[@kevinu.k.7042]

I would love to hear why the ECB is paying less interest on government debt. The very thing we are shown here does not work.

[@tobiasgreen3576]

On that purchase of wealth-destroying index linked stock at negative real returns - it definitely had something to do with regulation and accounting, resulting in appalling stewardship decisions being made, seriously hurting the situation of pension scheme members and their sponsors.

[@anthonyferris8912]

And as of March 2023, the Japanese public debt is estimated to be approximately 9.2 trillion US dollars (1.30 quadrillion yen), or 263% of GDP, and is the highest of any developed nation.

[@richardcoppack5357]

I love the Professor's repeated understatement.

[@drscopeify]

I am confused here does the BOE not return the interest coupons BACK to the UK Government? In the USA the FED returns the interest back to the US Treasury which is why the debt held by FED is "free" money as the interest is returned back.

[@brownlow3400]

I'm still unclear as to why we should worry about govt debt. They assert that it's likely to increase, which doesn't make it inherently bad. They claim that it's historically high as %GDP, but it's at historical average. They admit that it's about average among similar economies (in fact it's below average), but then claim the "whole ship is going down" and guffaw without explanation. The discussion of QE/interest on reserves is all over the place. The interviewee, presented as an authority, is at odds with others and a quick google reveals that he is indeed a deficit hawk.

[@Phil_D_Waller]

they dont understand Money . they dont understand IOUS , liabilities or assets . They simply dont get it. The govt doesnt need back its own IOUS. They are imbecilic

[@JagdgeschwaderX]

Because they will allow inflation to run hot because it erodes their debt but won't help us. There is so much waste in government spending we could make huge savings and we'd not even notice.

[@BosskV2]

Just a reminder that UK government debt reached 400% at the end of the second world war. Despite this the Labour party still built the NHS, the social welfare system and over half a million homes to rebuild the country. Our current debt is 100%. I'm not saying I'm okay with our current debt... but don't let anyone fear monger. Britain has been in far worse situations in the past. Fear mongering over debt is precisely how the Conservative party manufactures consent for their austerity ideology (which does not reduce debt).

[@brownlow3400]

Yep, and 100% of GDP is in fact the historical average - or less minus what the state owes itself.

[@BosskV2]

@@brownlow3400 ...also lets not forget the enomorous wealth stashed away in off shore tax avoidance accounts. Enough wealth to pay for Britain's debt at LEAST thirteen times over. This fear mongering over debt, fails to recognise that we have all heard of the Panama Papers and the Paradise Papers.

[@BosskV2]

@@robinette4363 ...there are many ways to finance debt. Are you aware of the Panama Papers or the Paradise Papers? You ought to be.

[@JagdgeschwaderX]

We were lent the money for WW1 and WW2 by the Americans, the Pound Sterling was the world reserve currency and we had an Empire. We were also bankrupt and were propped up by more loans from the US once they realised just how bad things were here. If you want to see double digit interest rates then keep on borrowing because it's highly likely we'll experience another gilt crisis later this year because they will simply not stop borrowing. The only way I would agree with the high levels of debt we have would be if they'd invested it in infrastructure, upgrading the power grid, building a modern road/rail network and building power stations so we were a modern country and not a decrepit mess. Yet they've blown our debt up to dangerous levels which is why the rates are and and we've got nothing to show for it.

[@tictoc5443]

Thats certainly a point of view but if we cimpare govt debt to business debt the more debt the cimpany has the mire of itz earning go on interest payment resulting in less available for reinvestment and growth...likewize with government debt less available for public services and inveztment There is always an opportunity cost

[@Inspector-Chisholm]

If you don't have to pay interest on the QE, why don't you just defer payment indefinitely?

[@MathewRouge]

Government debt is not like household debt. Government debt is an assest to a lot of people in this country such as pension funds. Government debt should not be seen as a bad thing. Also, the government doesnt need to take on debt to spend. They can have an overdraft with the Bank of England that never requires paying back as the govt owns the BoE. As much as I admite the ifs, l wish they could explain this and the fundamental difference between govt debt and household/company debt. The govt can literally print money if it wants as long as spending into the economy does not cause inflation.

[@Phil_D_Waller]

they dont understand this as they are micro economists , not macro and they dont understand money. they think we are on a gold std. I would take anything they say with a massive pinch of salt, in fact i'd love to go up against them and have messaged them more than once so that we could have that debate, but as of yet, nothing . i guess its because i'd ruin them on the mechanics of it all they simply dont get this .....they never will

[@mattbennett9467]

Well said. His explanation on QE appeared to deliberately evade the central point that once the BofE has purchased the debt and holds ownership of the bond, it doesn't have to sell it back to the market, it could just hold onto it until maturity. Yes that increases the money supply which has to be managed through taxation / allowing further asset price inflation, but the government is in control of this. We need not panic / shrink the economy / destroy public services. It is a choice, not a looming disaster.

[@stevemartin7464]

I agree up to a point, but the question I have is why does a govt really need high debt? Doesn't it mean we are spending money we dont have?

[@mattbennett9467]

@@stevemartin7464 No. Think of it in terms of money supply. How money is created (central bank creation), who initially receives it (govt projects / public sector workers), where it ends up (asset owners) and how govts control the amount in circulation (tax). As the economy grows (population rise / more goods and services available) more money is needed to enable each individual to access resources. As a result, more money beers to be created in order to enable the economy to grow. Bank loans provide this, but so do governments via central banks. The latter is thought of as borrowing or debt as every dollar created is accounted for, but its not really. If the govt cancelled its overdraft with the central bank by stopping spending and taxing everything, there would literally be no money anywhere. The bigger the economy, the bigger the 'debt'. That doesn't mean there's no limit. It's a balancing act. Too little restricts growth, too much causes inflation. Hope that helps.

[@cobbler40]

With interest rates at 5.25% the interest payments are something to worry about.

[@Phil_D_Waller]

how?

[@freemind4549]

More worrying is losing £400 billion every time a pandemic hits, how will you cope with that ?

[@truxton1000]

@@freemind4549 You cope if it only happens once every hundred years. The question is why would they do what they did, Sweden did not and they are in a better position today.

[@adamthemyth]

​@@truxton1000did you go out and protest against the government's Covid restrictions?

[@stevemartin7464]

Why do countries keep "Pay as you go" pensions? Why not start using better methods to fund them? I think Chile started that in the 1980s and now they probably have a fully funded pension system. As for NHS; limit the services or find better ways to fund that too. I do agree that there is nowhere near the flexibility that the govt had after WW2 to lower govt expenditure. The puzzle for me is what has happened in the last 20 years to make debt grow so much? Is it the idea that "we can spend or way out of any crisis"? The govt seems to get the spending part right, but not the repayment part so debt just keeps growing.

[@mattbennett9467]

I'm bailing out at 28 minutes. This guy sounds confused himself, dancing around the fundamentals as he hopes to avoid answering the crux of the question. His exasperated explanations are not at all clear and I'm here to learn about this. Professor Richard Murphy gives wonderfully concise information on these subjects, but I'm seeking other views to balance my learning. This falls way short. Ill look elsewhere..

[@russellwild8329]

Throwing money at the NHS isn't going to solve any problems, it'll just result in more spend on staff and by that also future pension liabilities. They need to look at the efficency of the service and all other government departments, which if they just throw money at it, it'll reduce productivity

[@yesmarioo]

Exactly. I find it ridiculous they only talk about increasing tax and increasing spending. What about increasing efficiencies. I would bet about 25% of the entire budget is wasted on inefficiencies. It would be nice to hear someone for once talk about increasing efficiency and achieving more with less.

[@JanetteCorker]

As always, great educational material, thanks.

[@m0o0n0i0r]

Yes we should worry about high government debt. Looking at HMRC tax records - anyone can do it online. It has taken 12%

[@FONASDeadlock]

Gordon Brown's suggestion to stop paying interest on the reserves held at the Bank of England is a no brainer. They're making so much money that this just becomes an easy to absorb business expense for them. It's not possible for the retail banks in the UK to pay less money in interest, any other argument is just a nonsense.

[@Pirake123]

Especially considering the government bails out the banks when they fail, spent £££ in 2008 to keep them afloat (doesn't happen in other industries).

[@stephfoxwell4620]

Japan hasn't worried for 35 years.

[@billcheung4439]

0:07 / 45:58 • Introduction Should we worry about high government debt?why not cut all MP?councilor? wage & extre

[@I_Was_Chrispy_Kreme]

I don’t understand two things here. Firstly calling it government debt when it is in fact a repayable bond aka gilts and not some kind of credit card, in other words someone has loaned us money. Secondly why do economist insist of comparing the national debt to gbp as if in some way there is a linkage or dependency. The government should create investment bonds through nsandi to be used for improving the nhs or schools or whatever for normal people to buy.

[@tictoc5443]

The comparison to gdp is just a measure of how affordable the debt load is to manage The higher the percentage the less money is available to provide public services for example nhs social security

[@truxton1000]

Is it not govenment debt if the government spend the money to pay for public sector services? You could call it public sector debt, does not matter. Well it's normal to compare it to the turnover of the economy, like you compare a mortgage with the yearly income of a person, what would you suggest replacing it with, as it's of course usefull to compare it to something.

[@123Andersonev]

800 bn of it is sat in the bank of englands assets purchase facility... talk about that.

[@MJ-YT-USR]

QE was very complex and clever I'm sure, but I don't believe it should have been used, particularity not in the way it was during lockdowns (which found it's way directly into peoples pockets and there inevitable fueled inflation). I believe QE has just prolonged the problem, encouraged bad habits to continue and made what is a complex system even more complex. And QE had only been used once in Japan prior to the Financial Crisis, and no one really understood what the long term consequences of it would be.

[@davideyres955]

Uk debt to gdp ratio is marginally less than the USA. I find it odd that they do not know that. The US debt is projected to rise and rise in the near to far future. The solution they are trying is to print money and inflate the debt away. Good luck.

[@truxton1000]

As I understand the USn debt is at 125% now, UK is at 100? Well to me that is a large difference. It's regarded as a breaking point when the debt is past 125%, of course there are differences as for example Japan has a much higher debt but interest there is so low anyway that it's manageble, also the Japan debt is mainly held by domestic creditors, unlike for example in USA...

[@GonzoTehGreat]

15:20 This has to be the least understandable explanation of QE I've come across. After listening to the Professor twice I still don't understand why the government has to pay interest to the BoE. 17:48 He does briefly discuss the idea of the BoE forcing private banks to hold reserves on which they don't receive interest, but says this would be equivalent to a tax on the banks (I'm not sure that it is), the cost of which would be passed onto customers. Given how important QE has been since 2008, a clearer and more detailed explanation would've been more helpful.

[@justjackman]

Now you could do that…

[@richardcoppack5357]

My own hunch is that productivity will rise now that interest rates are back at "normal " levels. It forces companies into investment to keep labour costs under control. Labour costs are rising at 5 to 6% per annum.

[@m0o0n0i0r]

According to NIESR 26 Sept 2022 - Economists tend to think that low real interest rates spur investments by decreasing the financing costs businesses. I never belived that low interest rates would spur investments in to good quality growth. Lucky for me, i followed through getting ready for my retirment

[@Nevsmith02]

I am shocked by the economic state of the nation and I do not understand why there is not more national fright. It really needs stout political leadership, and a measure of political consensus, to get us out of this national crisis of high debt consuming too much revenue, chronically insufficient tax to deliver sufficiency in public services or improve national infrastructure, and unresolved economic and regional inequality. We can model a National Economic Recovery Plan without politicians muddying the water with their biases and ideologies. The first thing to do is to restructure taxation so that (a) significantly more tax is collected overall (b) far more tax is collected from the very broad shoulders of the top decile of incomes (but not excessively more from the top 1%), and (c) so that an extremely large shift is made away from taxing business and business activity towards taxing the person more heavily. So we need a grown up conversation about how that will be delivered over two decades. So lets say we grow overall tax income by £400 billion pa in real terms over the course of 10 years, and find another £100 billion from efficiency savings, giving us £500 billion to play with. On the expenditure side we increase public expenditure by £300 billion from the actual base, and cover the running annual deficit of £100 billion, those two strategies coming to £400billion . In this way, because £500 billion of fiscal headroom has been created, we secure an annual surplus of £100 billion to pay down the national debt and create a future buffer for cyclical national crises. To make this take off, you have to apply five Golden Rules: don't invest any more in public expenditure until you have got extra tax flowing into the coffers on a big scale and there is a growing annual surplus; secondly, make sure that first call for growth in public expenditure is £75 billion per annum extra on effective pump-priming as part of a long term Industrial Strategy; thirdly make sure that all of Education, Justice, National Defence and the NHS receive substantial real terms growth over time to restore sufficiency per capita; fourthly, plan to eliminate absolute poverty and sharply reduce relative poverty by step-increasing the National Living Wage and by increasing benefits for those in work; fifthly, get a grip of immigration so that it is more marginal, more selective and works every time both for the national economy and for social cohesion. To make this happen, you have to construct a 20 Year Economic Plan and phase things in, and to do that, you need a degree of political consensus about the actions that are needed to avoid the looming national crisis of insolvency, collapse of public services, and a severe breakdown in national cohesion. If you have that consensus, you can work on programmes in a very whole-system way. We can do all of these things and take the financial markets with us, but first we need a concerted attack on the harmful and irrational "tax is bad" propaganda which both major political parties have heavily bought into. I want to see economists and particularly our IFS rise to the occasion and develop models of this fiscal scenario - almost like Business Case Scenarios - to promote apolitical thinking about the economy over the next 20 years. The fiscal scenario I have painted is a centrist one in which there is a great deal for Conservative and Centre Left interests as well as for the best interests of every resident of the UK, so come on IFS, throw everything at it!

[@vvwalker7261]

Yea, come on IFS, throw everything at my YT comment! You would be better throwing everything at it yourself and running as an MP

[@therealscot2491]

Good luck cutting off migrants from the dole.

[@nrmleigh]

@@therealscot2491can you provide some figures to prove your point, thanks

[@forsdykemontague1017]

Debt/GDP over 80% puts the breaks on growth, as we have seen the proof of the pudding has been in the eating. Japan is another example with practically 30 years of stagflation.

[@tonycouling2455]

Why is it that the IFS spends all its time analysing how an insufficient spending pot be split up across govt depts and yet no time at all in bringing it's expertise to bear on how we get the productivity growth that is needed to properly fund what we want to do. In my industrial career, we often used the mantra that if you have your financial health, you can do whatever you want! You established in this discussion that productivity growth was the sole answer to our ills and yet you skip over it as if the current parlous state was situation normal. We know that the Tory trickle down idea is now widely discredited and we all know that Labours ideological social ownership ideas are equally flawed. So what's the answer? All we hear at present is ‘pie in the sky’ hopes of what AI might yield although no concern about the societal damage it will probably cause. Inward investment is totally dependent on outside sources - resulting in profits and ownership going offshore yet again. And yet, any mention of manufacturing is skipped over with equal disdain by you all. If the service sector is so damned good for us, why is it that we are in this state and still struggling from the 2008 crash that the service sector gifted us? Come on IFS, let's bring the big guns to bear on solutions and not just pawing over the awful state we are currently in ...... You see to prefer agonising over that instead of finding a way out of it. Aren’t there any exciting ideas that transcend all the old political and economic dogmas?

[@btc9920]

Take a note out of the new Argentinian President. Slash and burn government spending. Foreign aid budge - gone. NHS budget - halved Welfare - halved Education - halved, Civil service - halved etc etc. Let the free market provide. Time to adopt Austrian economics and move away from Keynesian / MMT garbage that is destroying countries. Short term pain, long term gain.

[@JuliusFawcett]

We should wealth tax the top 10% to pay off the national debt

[@vvwalker7261]

That has not worked anywhere that it has been implemented. Educate yourself

[@JuliusFawcett]

@@vvwalker7261 I have an economics degree

[@PeaceProsperity-dv7hs]

@@vvwalker7261 exactly. The top 10% will go where they’re treated best. Your pre-1970s socialist economics needs updating.

[@xtc2v]

Britain is in a desperate financial situation. However spendthrift Labour started giving away tens of millions to other countries as soon as it got into power. God help us!

[@Phil_D_Waller]

This is utter garbage from inept micro economists

[@SgtAndrewM]

Stop foreign aid and stop housing migrants ans benefits for none citizens. That would save many billions😊

[@petebest8422]

So pessimistic

[@DeFi-Macrodosing]

All this socialism makes the libertarian in me die a little.

[@nrmleigh]

Good!