The debt delusion

Cameron's Conservatives are economic illiterates

I am sick and tired (tired!) of listening to Tory politicians, free-market economists and right-wing pundits go on and on about our national debt, pushing the ludicrous idea that we are going to default on it. These are the same close-minded ideologues who spent years promulgating the virtues of the neoliberal, deregulated, financial capitalist model that so utterly and miserably failed in the autumn of 2008. So you can imagine how my stomach churned this morning as I read the Guardian's front-page headline: "Cameron: UK could default on its debt".

I'm sorry, but this is nothing short of economic illiteracy and political posturing. The Conservative leader said:

You can get to a level of government debt where, not that it becomes certain that people will cease to lend you the money, but you start running risks of them demanding higher premia, higher interest rates. Or you run the risk of not being able to meet your obligations.

This is pure and utter nonsense. Suffice it to say that we are not going "bust" and David ("I have never predicted that it is going to happen") Cameron knows this. However, as I have neither the time nor the inclination to deconstruct the Tory position on debt in any detail, let me point you in the direction of others who are far more knowledgeable on this subject than the Tory leader and his ill-informed speechwriters.

1) The economist Paul Ormerod, writing in the New Statesman in May:

Why . . . have the media become fixated by the projected increase in debt? The figures are big, almost unimaginably so. But when the British experience is put into an international context, the hysteria does not appear to be justified. As I write these words, for instance, I read that the Italian government has revised upwards its forecasts for public-sector debt relative to GDP. In 2009, Italian debt will be 114 per cent of GDP, rising to 118 per cent in 2011. On a comparable basis, Britain's figures are 72 and 87 per cent, respectively. These Italians, we may shrug, they do things differently. But what about the prudent Germans? In the 1997-2006 decade, before the present problems started to materialise, German public-sector debt relative to the nation's economy averaged 64 per cent. In the United States, the average was 61 per cent, and in Japan (due to its own recession of the early 1990s) a huge 164 per cent. In the UK, it was just 46 per cent. And literally every government is projecting large increases in debt.

Again: should this worry us? Well, we can usefully think of the ratio of debt to GDP as being similar to the size of an individual's mortgage relative to his or her income. And just like a domestic mortgage, there are two separate components, the interest payments and the eventual repayment of the capital sum.

So, in the UK, for example, the government offers for sale what are known as gilts -- from the phrase "gilt-edged", meaning that if the British government and not Johnny Foreigner backs them, you are certain to get your money back. The gilt states the interest that will be paid, and the date the government will repay the holder (who may very well not be the original purchaser, as gilts can be traded just like shares). The repayment date could be in just a year, or two or three decades hence.

But unlike with a personal mortgage, repaying the capital sum isn't something governments, at least those in stable western democracies, have to worry about too much. When one tranche of gilts comes up for repayment, it isn't usually a problem for the government just to issue a new set if it wants to. Obviously, if all the £1.4trn debt came up for renewal at the same time, there might be problems in persuading investors to refinance the whole lot. But provided the Bank of England is reasonably professional and astute, the repayment dates can be spread out over time.

Since the Second World War, all governments have had an important ally in their programme of rolling over and refinancing their debts -- inflation. When a pension fund, say, buys part of a new issue of gilts, the amount that the government agrees to repay on the due date is fixed in money terms. But inflation means that when payback time comes round, this fixed amount is worth much less.

2) The Nobel Laureate and Princeton University economics professor Paul Krugman, writing on his New York Times blog in July:

Hmm. My attention has been on other things, so it's been a while since I looked at British bond rates and CDS spreads. But here's where they are right now: ten-year bond rates at 3.737, compared with 3.337 for Germany; CDS spread at 71 versus 35 for Germany. Really not so bad. But, but, wasn't Britain supposed to be hurtling toward bankruptcy?

3) The former director of the Institute for Fiscal Studies Andrew Dilnot, writing in the Times in December 2008:

It's a record! Debt here, debt there, all greater than ever -- and the recession scarcely begun. Well, yes, if you take cash figures, if you ignore the effect of inflation and ignore the size of the economy, as if a £10 debt meant the same to your granny in childhood as it would in 2008 to someone in their earning prime. Only then is the number of pounds of debt "a record". Play this game with the National Debt and we find that it has hit "a record" in about 50 of the past 60 years.

4) The chief executive of the government's Debt Management Office, Robert Stheeman, speaking to Channel 4 News's economics correspondent, Faisal Islam, in May:

It [the challenge of weekly auctions of government debt] is a major one, and the numbers are extraordinarily high, I wouldn't want to pretend otherwise. At the same time we do have one big advantage and that is that the major government bond markets have become extremely liquid and extremely efficient . . . and I'm often asked: can the market take this -- and the answer is, yes it can . . . I'm genuinely confident that it will be doable and that everything that makes our market work -- not just ourselves, but the banks who help us sell our debt and the whole investor community, domestic, internationally -- will support the programme.

5) The Financial Times's chief economics commentator, Martin Wolf, writing in the FT in April:

. . . why should such a temporary increase in the fiscal deficit be terrifying? UK net public debt -- forecast at 61 per cent of GDP this year -- remains well below the average of advanced country members of the G20. At the end of the Napoleonic and second world wars, UK public debt was close to 2.7 times GDP. Yet even this triggered none of the hyperinflationary consequences now widely feared. As the IMF also notes, even a 100 percentage point increase in the debt ratio should require an offsetting shift in the primary fiscal balance (with interest payments removed from spending) of no more than 1 per cent of GDP, provided fiscal credibility is maintained.

6) The Financial Times columnist Samuel Brittan, writing in the FT in March:

Nothing I have said will convert people who have an instinctive fear of governments getting into debt. Let me therefore cite the distinguished English historian Lord Macaulay: "At every stage in the growth of that [national] debt the nation has sent up the same cry of anguish and despair. At every stage in the growth of that debt it has been seriously asserted by wise men that bankruptcy and ruin were at hand. Yet still the debt kept on growing; and still bankruptcy and ruin were as remote as ever." Harold Macmillan, as chancellor of the exchequer, quoted Macaulay in his 1956 Budget speech and remarked how the national debt had risen from £6bn in 1914 to £27bn in 1956, representing 27 and 146 per cent of gross domestic product respectively -- about twice what is now in prospect. Yet these percentages were reduced in the postwar phase without any heroic reserve or 'sinking' funds, through the simple forces of economic growth and inflation creeping at a rate not much above current inflation targets.

Of one thing I am sure. If we had the misfortune to engage in a major war, we would have far higher deficits and debts than anything now in prospect and few except some pacifists would worry. The second world war was financed in the UK with a 0.5 per cent bank rate. Why should it be more alarming for governments to get into debt to put people into useful work satisfying human needs than to borrow for guns and tanks whose only aim is to kill other human beings?

So Cameron and Osborne would do well to brush up on their Macaulay, if not their Keynes.

On a side note, much of the media coverage of this story has focused on how the leading credit rating agency Standard & Poor's lowered its outlook on Britain from "stable" to "negative" on 21 May and said the nation faced a one-in-three chance of losing its AAA rating. However, far fewer papers devoted column inches to the fact that, on the same day as the S&P warning, the other two major credit rating agencies, Moody's and Fitch, affirmed the UK economy's "stable" outlook and said they had no plans to review that outlook. But even if they did, and they joined S&P in issuing gloomy warnings about potential downgrades, the man in charge of raising money for the government by selling debt, Robert Stheeman, seems remarkably unperturbed:

A credit rating is a significant factor, looked at by international investors in particular. At the same time, a credit rating is ultimately just that: it's an opinion by the credit rating agency. I don't think it would fundamentally change the way international investors view our debt. It could mean they might demand fractionally more in terms of yields, [but the difference] could easily be imperceptible.

Then there is the issue of the agencies themselves - when will they be downgraded? Their failure to predict defaults on mortgage-backed securities, and their doling out of triple-A ratings to what turned out to be junk assets, helped cause the global financial crisis in the first place. As Professor Kevin Gallagher of Boston University pointed out last month:

The rating agencies have serious conflicts of interest, face little-to-no competition, constantly fail to predict defaults and accentuate the financial crises they've played a big role in creating. These issues need to be addressed to put this crisis behind us and prevent the next one.

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

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Gender pay gap: women do not choose to be paid less than men

Care work isn’t going anywhere – and it’s about time we recognised which half of the population is doing it, unpaid.

Is it just me, or does Mansplain The Pay Gap Day get earlier every year? It’s not even November and already men up and down the land are hard at work responding to the latest so-called “research” suggesting that women suffer discrimination when it comes to promotions and pay. 

Poor men. It must be a thankless task, having to do this year in, year out, while women continue to feel hard done to on the basis of entirely misleading statistics. Yes, women may earn an average of 18 per cent less than men. Yes, male managers may be 40 per cent more likely than female managers to be promoted. Yes, the difference in earnings between men and women may balloon once children are born. But let’s be honest, this isn’t about discrimination. It’s all about choice.

Listen, for instance, to Mark Littlewood, director general of the Institute of Economic Affairs:

“When people make the decision to go part time, either for familial reasons or to gain a better work-life balance, this can impact further career opportunities but it is a choice made by the individual - men and women alike.”

Women can hardly expect to be earning the same as men if we’re not putting in the same number of hours, can we? As Tory MP Philip Davies has said: “feminist zealots really do want women to have their cake and eat it.” Since we’re far more likely than men to work part-time and/or to take time off to care for others, it makes perfect sense for us to be earning less.

After all, it’s not as though the decisions we make are influenced by anything other than innate individual preferences, arising from deep within our pink, fluffy brains. And it’s not as though the tasks we are doing outside of the traditional workplace have any broader social, cultural or economic value whatsoever.

To listen to the likes of Littlewood and Davies, you’d think that the feminist argument regarding equal pay started and ended with “horrible men are paying us less to do the same jobs because they’re mean”. I mean, I think it’s clear that many of them are doing exactly that, but as others have been saying, repeatedly, it’s a bit more complicated than that. The thing our poor mansplainers tend to miss is that there is a problem in how we are defining work that is economically valuable in the first place. Women will never gain equal pay as long as value is ascribed in accordance with a view of the world which sees men as the default humans.

As Katrine Marçal puts it in Who Cooked Adam Smith’s Dinner?, “in the same way that there is a ‘second sex’, there is a ‘second economy’”:

“The work that is traditionally carried out by men is what counts. It defines the economic world view. Women’s work is ‘the other’. Everything that he doesn’t do but that he is dependent on so he can do what he does.”

By which Marçal means cooking, cleaning, nursing, caring – the domestic tasks which used to be referred to as “housework” before we decided that was sexist. Terms such as “housework” belong to an era when women were forced to do all the domestic tasks by evil men who told them it was their principal role in life. It’s not like that now, at least not as far as our mansplaining economists are concerned. Nowadays when women do all the domestic tasks it’s because they’ve chosen “to gain a better work-life balance.” Honestly. We can’t get enough of those unpaid hours spent in immaculate homes with smiling, clean, obedient children and healthy, Werther’s Original-style elderly relatives. It’s not as though we’re up to our elbows in the same old shit as before. Thanks to the great gods Empowerment and Choice, those turds have been polished out of existence. And it’s not as though reproductive coercion, male violence, class, geographic location, social conditioning or cultural pressures continue to influence our empowered choices in any way whatsoever. We make all our decisions in a vacuum (a Dyson, naturally).

Sadly, I think this is what many men genuinely believe. It’s what they must tell themselves, after all, in order to avoid feeling horribly ashamed at the way in which half the world’s population continues to exploit the bodies and labour of the other half. The gender pay gap is seen as something which has evolved naturally because – as Marçal writes – “the job market is still largely defined by the idea that humans are bodiless, sexless, profit-seeking individuals without family or context”. If women “choose” to behave as though this is not the case, well, that’s their look-out (that the economy as a whole benefits from such behaviour since it means workers/consumers continue to be born and kept alive is just a happy coincidence).

I am not for one moment suggesting that women should therefore be “liberated” to make the same choices as men do. Rather, men should face the same restrictions and be expected to meet the same obligations as women. Care work isn’t going anywhere. There will always be people who are too young, too old or too sick to take care of themselves. Rebranding  this work the “life” side of the great “work-life balance” isn’t fooling anyone.

So I’m sorry, men. Your valiant efforts in mansplaining the gender pay gap have been noted. What a tough job it must be. But next time, why not change a few nappies, wash a few dishes and mop up a few pools of vomit instead? Go on, live a little. You’ve earned it. 

Glosswitch is a feminist mother of three who works in publishing.