Labour’s “basic instinct” is to spend money and their economic policies will leave Britain £500 billion worse off, a Cabinet minister will say today.
Sajid Javid, the Culture Secretary, will say that labour MPs believe that spending money is a “mark of success” and they are “simply not comfortable” with austerity measures.
He said that according to a Treasury analysis, under Labour the Britain’s debt will be the equivalent of two thirds of national income in 2035. Under the Conservative approach, it will be a third of GDP.
There’s a lot wrong with this idea. Apart the fact that Labour haven’t produced any spending plans yet, and when they do they’re unlikely to be much different from the Tories, where does he get £500m from? And what does ‘worse off’ mean in this context.
His time scale is over the next 20 years. ‘Worse off’ to me would be that either national income in 2035 would be £500bn lower than it would otherwise be, or that the cumulative shortfalls in national income over the next 20 years under a Labour Government would add up to £500bn. It’s already a nonsense because for a start, the electoral cycle is only 5 years, and if Labour were to win in 2015 and stay in power for 20 years (highly unlikely) wouldn’t that be an indication they were doing something right?
Javed is not even talking about national income though with his £500bn figure. He’s talking about government debt. He’s saying that a Tory government would get the Debt/GDP ratio down to 33% by 2035, while Labour would only get it down to 66%, which it money terms would be £500bn. There’s a couple of crap assumptions here. The main one is that more government debt is worse than less government debt. This is false. Indeed the opposite may be true.
All government debt is someone else’s savings. Hence more government debt means more savings and vice versa. So whether a low Debt/GDP ratio is better than a higher ones depends entirely on how that outcome has been achieved. You could have a fast growing, dynamic economy with a high level of government debt, and equally you could have a slow growing economy with a very low debt/GDP ratio, and vice versa. For example, consider these two scenarios:
1. National income is £1 trillion. Government debt is £333bn.
2. National income is £1.5 trillion. Government debt is £1 trillion.
Which is ‘worse off’. Sajid Javid would say we are worse off in scenario 2 because government debt is higher. Any reasonable person though would conclude that we are clearly much better off in scenario 2. Indeed £500bn better off!
For claiming that a 66% Debt/GDP ratio vs a 33% debt/GDP ratio means we are £500bn worse off, Sajid Javid deserves to be laughed at. He’s apparently going to say all this in a speech today, and people will no doubt nod along sagely at his intelligent analysis. The world’s gone mad!