1. Busting the single narrative
The debt crisis as just another story – or
Why are we prey to a single narrative?
The Coalition Government is embarking on an unprecedented round of spending cuts. “It is as tough a package of retrenchment as the IMF imposed on Greece, a country on the brink of bankruptcy and twice as tough as the famously harsh measures Canada took between 1994 and It is three times tougher than Sweden's measures between 1993 and In British terms, it is immeasurably tougher than what we did after the IMF crisis in 1976 or after the ERM crisis in 1992….No country has volunteered such austerity.” Will Hutton, The Guardian
Are the cuts justified and do the assumptions behind it stand up to scrutiny?

2. This was ON Andrew Marr’s show……
“We were on the brink of bankruptcy…”
“You clearly need to make the savings, the cuts and raise taxes...”

3. “The Chancellor has exaggerated the sovereign risks that are threatening the country.”
Professor Christopher Pissarides,
Nobel Prize for Economics in 2010,
Daily Mirror
"I think it is likely that the economic downturn will last far longer and human suffering will be all the greater."
Professor Joseph Stiglitz, Nobel Prize For Economics In 2001, Daily Telegraph
“The best guess is that Britain in 2011 will look like Britain in 1931, or the United States in 1937, or Japan in 1997.”
Professor Paul Krugman,
Nobel Prize for Economics in 2008, New York Times

4. BIG debt percentage You can only understand how is
when you compare it as a
percentage
of GDP

5. £1.435 trillion But what is GDP? GDP = + + + The GDP for 2010 is……
Consumer spending +
Business Investment +
Government Spending +
But we should go back to GDP as well and look at what that is. Actually, it’s a pretty flexible idea and is heavily influenced by the volume and circulation of money in the economy. It is also based on a survey of information on sales collected from:
6,000 companies in manufacturing
25,000 service sector firms
5,000 retailers
10,000 companies in the construction sector.
Data is also collected from official sources in agriculture, energy, health and education. Still - in 2008 there were 2.1m businesses registered for VAT and PAYE, which means the GDP survey represents 2% of businesses, and this does not include small businesses with a turnover of less than £60,000. How reliable is this as a measure of economic activity? But the scary bit is this. GDP is all of this multiplied by what is called the ‘velocity of money’ – e.g. how many times a pound is spent in the economy. This is ‘V’.
International Trade income
The GDP for 2010 is……
£1.435 trillion

6. National debt “Our debt is higher than it’s ever been…”
(Coalition Government)

7. ...The Maastricht Treaty EU limit on debt
60% of GDP
In the Maastricht Treaty, negotiated during Margaret Thatcher’s period as PM, the EU set a ceiling of 60% debt as a percentage of GDP. At the time, this was considered harsh. We’re not that far off of it.

8. Our Current debt – GDP ratio
64.6%
Our current level of debt as a percentage of our GDP is 63% or £903bn. The CG considers this to be dangerously high and threatens the economic future of the country

9. IF YOU DEDUCT WHAT WE GAVE BANKS, debt is EVEN LOWER
UK net debt is £952 bn
Excluding Financial sector intervention, debt is £845 bn*
Or 57.1% of GDP!
Source: Office National Statistics (November 2010)
Let’s look at the debt, then. Michael Moore’s film about American capitalism showed that the banks had hijacked the American economy and persuaded the government to give them billions of dollars of Tax-payers money - while making it impossible for people to borrow money. Same here. Look at this graph – you can see how much of our debt is made up of money given to the banks.
*This includes £100bn+ of the banks’ debts that is now UK Government debt

10. Our debt is historically low
Here’s another way of seeing it – as a graph. You can see that our current debt is pretty low. So why do we believe the story that it’s high? The UK has had much larger debts than today, but it has managed to service repayments without any need for severe austerity cuts to the public sector – in fact, while growing the public sector. Experts say that countries are at great financial risk if repayments of this debt are 12% or more of GDP. Our repayments are nowhere near this at around 4%. Anyway – more of that later.

11. ....our debt is low compared to the rest of the worldUK
65%
CANADA
81%
GERMANY
72%
FRANCE 77%
USA 95%
ITALY 119%
PORTUGAL 87%
GREECE187%
Now look at other countries’ debts. Pretty random-looking, isn’t it. But look closer. Canada is the model for our public sector cuts – they went through this between 1994 and But they now have a debt ratio even larger than ours! So even if there was a debt crisis – which there isn’t – savage cuts don’t do anything to help. But look at some countries with debt levels our government is aiming at – Uruguay, Algeria, Ecuador, Yemen, Turkey, Namibia.
SPAIN
70%
JAPAN 200%
Source: CIA World Factbook
Source: CIA Factbook

12. The deficit “The Deficit is caused by overspending…”
(Coalition Government)

13. THERE ARE 2 SIDE TO deficit
INCOME
Mainly taxes
SPENDING
Public services
Investment
Debt payments
Government
Is spending too high or income too low?

14. Growth and deficit are linked

15. There is a tax deficit The UK TAX take 1995-2010
Without the recession tax revenues should have been £100bn more than today.

16. GROWTH reduced the deficit
Oct 2009 to March 2010
Deficit
£165bn
£22bn
£145bn
Growth
1.5%

17. The deficit “Interest repayments are higher than ever…”
(Coalition Government)

18. Source: Public Finances Databank, ONS
GOVERNMENTS ALWAYS BORROW
Conservative Government
Source: Public Finances Databank, ONS

19. So why pay off the deficit over 4 years?
Our Borrowing is cheap, mainly from the UK and can be repaid over years
So why pay off the deficit over 4 years?

20. Debt Interest Payments
SERVICING THE DEBT….
The Thatcher government paid the equivalent of £174m per day
Debt Interest Payments
1981
1996
2006
2011
Payments(£bn)
13.2
26.7
26.2
43.3
As % of GDP
5.15
3.41
1.97
2.84
Thatcher Government

21. The deficit
“We have to make cuts…”
(Coalition Government)

22. Tax as a proportion of GDP (2007 - %)
Is THIS where the deficit is?? We don’t pay enough in tax to cover what we spend.
Source - Eurostat newsrelease – June 22nd 2009
LEVY TAX…..
Tax as a proportion of GDP ( %)
EU 16
40.4 UK
36.6

23. SINCE 1975 we have replaced direct with indirect taxes…
High tax rate

24. THE GINI CO-EFFICIENT – UN MEASURE OF INEQUALITY
The UK is now one of the MOST UNEQUAL societies in the OECD
THE GINI CO-EFFICIENT – UN MEASURE OF INEQUALITY
But why? Well – maybe because the banks who corporately control wealth – have as their number one goal the personal and corporate accumulation of wealth. Take money from the public sector, give it to banks. Isn’t that what we’ve been doing? But look at the effects - look at the Gini Coefficient. The Gini Coefficient measures household incomes. The lower the Coefficient, the lower is the gap between rich and poor; the higher it is, the more inequality there is. See it rising?
Incidentally, doesn’t this suggest that there is capacity in the economy to raise more money through tax, as wealth and income have concentrated amongst a smaller group?
Inequality

25. The deficit
“What really caused the deficit?”

26. Let’s not forget who’s to blame…
“…although the causes of the crisis may have been rooted in the financial sector, the consequences are affecting everyone, and will continue to do so for years to come.” (Mervyn King’s Address to the TUC conference – )

27. how the banks affect our gdp…..
Increasing or reducing the supply of money into the economy through household and business lending artificially inflates or deflates our GDP – i.e. Banks manipulate the flow and quantity of money
EXAMPLE: in the 2000s banks pumped between £10-14bn into the economy every year through housing equity withdrawal .
Since 2009, banks are refusing to lend and have sucked £15bn out of the economy per year
(Source of statistics: Bank of England)
Why scary? Because the banks virtually control both the volume and the Velocity of money. They can turn it on and off like a tap. When they wanted to increase their property assets they gave us cheap and fast money to buy second and third homes. After the crisis they want to raise the price of money (which is, after all, what banks sell) so they restrict it and cut down its Velocity. They lend less and charge massive prices for it – some mortgages are priced at 4%, 5% - even 8% above the base rate; some small businesses are offered loans and overdrafts at 15%. Vince Cable is helpless as was Peter Mandelson. This is what it means when Michael Moore say that the banks have hijacked the economy. It’s happened here.

28. Growing influence of finance
The contribution of sectors as a % of GDP

29. Re-Balancing the economy
Yes

30. So do we need cuts?
Debt is low compared to our history and partner nations
Growth plays a key role in reducing the deficit
If tax is lagging behind spending, why not borrow short term to encourage growth?
What would 3% per year growth for 5 years do to the deficit?

31. SO What is this a crisis of?
National debt? NO
Current account deficit? Depends on your values - it’s political
Economic governance? YES
Employment? YES
Banking? YES
Democracy and public debate? YES
So – no national debt crisis – and the fiscal crisis depends on how you see things. If you think we ought to cut back public services in order to channel more money to the banks and the wealthy classes and cut tax, then you will think there is a crisis in the fiscal deficit. You may, for example, believe in Thatcher’s famous ‘trickle-down’ policy – that the more money the wealthy have the more ‘trickles down’ to the poor. But if you think that is unfair or inefficient, you will be inclined to think that the crisis is that we don’t collect enough taxes, our growth rates are too small and wealth accumulations are too concentrated. You don’t, incidentally, have to be a socialist to think that – but you do have to put a higher value in public serves than in the banks.

32. OUR SOCIETY IS MORE THAN OUR ECONOMY!
“The gross national product does not allow for the health of our children, the quality of their education, or the joy of their play.
It does not include the beauty of our poetry or the strength of our marriages; the intelligence of our public debate or the integrity of our public officials.”
Robert Kennedy, 1968

33. Economyths: prepared by
Barry Kushner
Saville Kushner