Are fiscal conservatives even certain of what they're arguing about?

One of the problems fiscal conservatives have is that most of them can't actually agree about what they are conservative about.

One of the problems fiscal conservatives have is that most of them can't actually agree about what they are conservative about. Debt? Deficit? Absolute, or relative? And how should we talk about the issue?

For instance, one would guess from their name that deficit hawks care about the deficit – that is, the amount that a country spends each year in excess of the amount of revenue it receives, officially called (in Britain, at least) public sector net borrowing (PSNB). Last year, PSNB stood at a shade over £120bn, and this year, it's forecast to be £91.9bn. That's the government's deficit reduction strategy at work, albeit at far slower work than we were promised in 2010.

But other fiscal conservatives go after debt (the official measure of which, Public Sector Net Debt, stands at £1.03trn). Fraser Nelson, for instance, condems the elision between the two in today's Telegraph:

Cameron faces the same problem. He says he is “dealing with the debt” when he is actually increasing the national debt by as much as Labour proposed: an almighty £600 billion. But he has not yet been rumbled. An unpublished YouGov poll by Policy Exchange, taken after last year’s Budget, found that just 14 per cent of voters realised the national debt is rising. Another poll, released this week, found that only 10 per cent see what’s going on. Now, just as under Labour, ministers play word games and talk about “cutting the deficit”, knowing that most voters will hear “cutting the debt”. Astonishingly, almost half of British voters think that debt is falling.

It's certainly the case that debt is rising, and will be rising for some time. And confusing debt and deficit – as, say, Nick Clegg does – is unacceptably economically illiterate. But it's unclear how, exactly, being a "debt hawk" would work.

It is emphatically not the case that Britain can begin reducing its debt any time soon. For all that Nelson attacks the government for increasing the national debt, to reduce it would entail turning a deficit into a surplus overnight. Just considering the pain involved in entering into a seven-year deficit reduction program, doing it any faster would be politically impossible.

And in fact, given the various multipliers in effect from government spending, it may be economically impossible as well. There is strong evidence to suggest that the mere fact of trying to cut the deficit too quickly led to the contraction we're now experiencing; and that contraction has reduced government revenue and increased mandatory spending to a degree that makes it difficult to do any deficit reduction at all.

Being a debt hawk would thus seem to necessarily imply being a deficit hawk, at least for the time being. When – if – the structural deficit is eliminated, then the two groups can argue over whether debt should start being reduced; but while there is a deficit, it's silly to pretend that national debt going up is somehow surprising, and unless you want to go full Paul Ryan, you aren't going to get rid of it in a year.

All of this confusion is compounded by the fact that if it's unclear what we ought to be trying to reduce, it's doubly unclear how we ought to go about measuring it. Debt hawks favour quoting absolute figures, like those I've used at the top of the post, because frankly one trillion pounds sounds a lot more than "65.7 per cent of GDP". Yet the latter is probably a more accurate representation of where we are; for one thing, it allows us to accurately compare the economic situation with similar ones from history, as this chart (from Wikimedia Commons) does:

And for another, it conveys an important truth about the debt, which is that we can shrink it in two ways: either by paying it off, or by growing our economy big enough that what's remaining doesn't matter. This is the truth behind arguments over "deficit reduction versus growth".

But there is an even better way to discuss the national debt that in terms of a ratio to GDP, and that is in terms of it's cost.

The only downside to having debt is that you have to pay interest on it. But more debt doesn't necessarily mean higher interest payments – in fact, it's the exact opposite. Joe Weisenthal explains:

Using data from Bloomberg, we looked at basically all of the big emerging and developed markets* with a big bond market, and good data on debt to GDP and decided to check to see if there was any connection at all between debt to GDP and the yield on their 10-year bonds.

The answer, quite clearly, is no.

In fact, using an exponential regression, we detect a slight shift down and to the right, meaning that the more debt a country has relative to its GDP, the cheaper it is to borrow.

As debt goes up, interest rates go down. So doubling debt doesn't double interest payments, and halving debt doesn't mean you pay half as much servicing it. In chart form, that claim looks like this:

 

Our interest rates are so ridiculously depressed at the moment that even though we've almost doubled our national debt to GDP ratio, the amount we pay to service our debt has barely gone up by half.

This is what the debt hawks should be looking at. Not debt to GDP, and certainly not absolute debt; nothing matters to debt except the cost of holding it. And that cost doesn't present a particularly compelling reason for cutting it.

Gold, as a common and universally accepted store of value, is particularly useful to illustrate stories about abstract economic concepts like debt. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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An unmatched font of knowledge

Edinburgh’s global reputation as a knowledge economy is rooted in the performance and international outlook of its four universities.

As sociologist-turned US Senator Daniel Patrick Moynihan recognised when asked how to create a world-class city, a strong academic offering is pivotal to any forward-looking, ambitious city. “Build a university,” he said, “and wait 200 years.” He recognised the long-term return such an investment can deliver; how a renowned academic institution can help attract the world. However, in today’s increasingly globalised higher education sector, world-class universities no longer rely on the world coming to come to them – their outlook is increasingly international.

Boasting four world-class universities, Edinburgh not only attracts and retains students from around the world, but also increasingly exports its own distinctively Scottish brand of academic excellence. In fact, 53.9% of the city’s working age population is educated to degree level.

In the most recent QS World University Rankings, the University of Edinburgh was named as the 21st best university in the world, reflecting its reputation for research and teaching. It’s a fact reflected in the latest UK Research Exercise Framework (REF), conducted in 2014, which judged 96% of its academic departments to be producing world-leading research.

Innovation engine

Measured across the UK, annual Gross Value Added (GVA) by University of Edinburgh start-ups contributes more than £164m to the UK economy. In fact, of 262 companies to emerge from the university since the 1960s, 81% remain active today, employing more than 2,700 staff globally. That performance places the University of Edinburgh ahead of institutions such as MIT in terms of the number of start-ups it generates; an innovation hothouse that underlines why one in four graduates remain in Edinburgh and why blue chip brands such as Amazon, IBM and Microsoft all have R&D facilities in the city.

One such spin out making its mark is PureLiFi, founded by Professor Harald Haas to commercialise his groundbreaking research on data transmission using the visible light spectrum. With data transfer speeds 10,000 times faster than radio waves, LiFi not only enables bandwidths of 1 Gigabit/sec but is also far more secure.

Edinburgh’s universities play a pivotal role in the local economy. Through its core operations, knowledge transfer activities and world-class research the University generated £4.9bn in GVA and 44,500 jobs globally, when accounting for international alumni.

With £1.4bn earmarked for estate development over the next 10 years, the University of Edinburgh remains the city’s largest property developer. Its extensive programme of investment includes the soon-to-open Higgs Centre for Innovation. A partnership with the UK Astronomy Technology Centre, the new centre will open next year and will supply business incubation support for potential big data and space technology applications, enabling start-ups to realise the commercial potential of applied research in subjects such as particle physics.

It’s a story of innovation that is mirrored across Edinburgh’s academic landscape. Each university has carved its own areas of academic excellence and research expertise, such as the University of Edinburgh’s renowned School of Informatics, ranked among the world’s elite institutions for Computer Science. 

The future of energy

Research conducted into the economic impact of Heriot-Watt University demonstrated that it generates £278m in annual GVA for the Scottish economy and directly supports more than 6,000 jobs.

Set in 380-acres of picturesque parkland, Heriot-Watt University incorporates the Edinburgh Research Park, the first science park of its kind in the UK and now home to more than 40 companies.

Consistently ranked in the top 25% of UK universities, Heriot-Watt University enjoys an increasingly international reputation underpinned by a strong track record in research. 82% of the institution’s research is considered world-class (REF) – a fact reflected in a record breaking year for the university, attracting £40.6m in research funding in 2015. With an expanding campus in Dubai and last year’s opening of a £35m campus in Malaysia, Heriot-Watt is now among the UK’s top five universities in terms of international presence and numbers of international students.

"In 2015, Heriot-Watt University was ranked 34th overall in the QS ‘Top 50 under 50’ world rankings." 

Its established strengths in industry-related research will be further boosted with the imminent opening of the £20m Lyell Centre. It will become the Scottish headquarters of the British Geological Survey, and research will focus on global issues such as energy supply, environmental impact and climate change. As well as providing laboratory facilities, the new centre will feature a 50,000 litre climate change research aquarium, the UK Natural Environment Research Council Centre for Doctoral Training (CDT) in Oil and Gas, and the Shell Centre for Exploration Geoscience.

International appeal

An increasingly global outlook, supported by a bold international strategy, is helping to drive Edinburgh Napier University’s growth. The university now has more than 4,500 students studying its overseas programmes, through partnerships with institutions in Hong Kong, Singapore, China, Sri Lanka and India.

Edinburgh Napier has been present in Hong Kong for more than 20 years and its impact grows year-on-year. Already the UK’s largest higher education provider in the territory, more than 1,500 students graduated in 2015 alone.

In terms of world-leading research, Edinburgh Napier continues to make its mark, with the REF judging 54% of its research to be either world-class or internationally excellent in 2014. The assessment singled out particular strengths in Earth Systems and Environmental Sciences, where it was rated the top UK modern university for research impact. Taking into account research, knowledge exchange, as well as student and staff spending, Edinburgh Napier University generates in excess of £201.9m GVA and supports 2,897 jobs in the city economy.

On the south-east side of Edinburgh, Queen Margaret University is Scotland’s first university to have an on-campus Business Gateway, highlighting the emphasis placed on business creation and innovation.

QMU moved up 49 places overall in the 2014 REF, taking it to 80th place in The Times’ rankings for research excellence in the UK. The Framework scored 58% of Queen Margaret’s research as either world-leading or internationally excellent, especially in relation to Speech and Language Sciences, where the University is ranked 2nd in the UK.

In terms of its international appeal, one in five of Queen Margaret’s students now comes from outside the EU, and it is also expanding its overseas programme offer, which already sees courses delivered in Greece, India, Nepal, Saudi Arabia and Singapore.

With 820 years of collective academic excellence to export to the world, Edinburgh enjoys a truly privileged position in the evolving story of academic globalisation and the commercialisation of world-class research and innovation. If he were still around today, Senator Moynihan would no doubt agree – a world-class city indeed.

For further information www.investinedinburgh.com