Letter: Now at crossroads in how to deal with our massive debt
This week we saw the Government debt finally breach the £2 trillion barrier. This is significant as the figure equates to 100 per cent of GDP. Of course when I refer to Government debt I really mean taxpayer debt, or yours and mine, since a Government has only the money it takes from us. So does this matter?
Well at times of low rates of interest, everyone is relaxed and quite prepared to continue to borrow money. The problem is the rates of interest are not “real’ they are derived not by markets but from the machination of central banks who are leant upon by Government.
In simple terms an interest rate indicates a cost of money. In a properly functioning market, the cost or interest rate provides a signal to investors, savers and business. A higher rate would push individuals and investors to save money whilst a lower rate would be seen as a signal to consume or invest.
We have however, broken these simple economic rules. The reason is simple, our economy is almost wholly geared towards consumption rather than production. This has encouraged people to over borrow say to fund house purchase that they will never be able to finance should rates rise. It is fuelling a fool’s paradise in which the Government pretends we can effectively have it all. The opposition pretends that any attempt to reign back state excess is tantamount to an attack on the poorest and we are constantly assailed by spurious and ill-thought-out notions of social justice.
We are, I am sad to say, now at a crossroads. We can choose the big or small state option. The former will mean little or no change to current trajectory. It will however, mean higher and higher taxes and lower growth. The later will mean pain now although not through tax rises. The economy has to become more productive with higher levels of private corporate investment and a reduced reliance on consumption. The Keynesian approach to economic policy is based more on a moral standpoint and a mathematical reasoning. It does not show us much of how human beings behave in the real economy. The socialist approach leads to decision by committee and very poor allocation of resources.
If we choose to ignore this debt the only way to deal with it will be to cheapen it over time. To do this inflation must remain below interest rates. We will see how easy that proves when all the endless printed money (quantative easing) begins to look for a home in the real economy. I have since my youth always known that Socialism equals a planned economy. A world in which the state will ultimately decide the share we all get. A world which will demonise success and tax it to such a degree that, it either flees or disappears altogether.
In short I can point to not a single successful such socialist experiment anywhere in the world. The problem we now face is we are heading that way. We have a Conservative Government at present in name only. Granted Covid-19 has brought the need for massive spending, but where is the vision? It seems there will be no return to what is euphemistically called austerity, so what is the government planning?
What we need is to move the economy to a more enterprising and dynamic reality. The issues we have are supply not demand side. Lower business taxes, less regulation and reformed planning rules are examples. Capital investment needs to be far better managed such that the taxpayer gets value.
We have to stop pretending that wealth appears from fresh air and understand that it comes from men and women freely accepting risk and engaging in the economy. Aspiration and social mobility are not solely about greed they are building blocks of civility and a prosperous social order.
Martin Bristow, West Midlands
