Hopi explains the basics and spells it out for the Tory hacks in such easy terms even they should get it…
First, what Ed Balls said was “We have acted in the downturn, that will mean that the economy is stronger, we’ll have less unemployment, less debt.” Balls is saying that we generate less debt by shoring up the economy now, leading to lower unemployment and stronger growth figures, which in turn leads to less future debt overall. In other words, if we hadn’t acted, growth would be worse, the future public finances worse and there’d be less money to spend.* Apparently this statement of the countercyclically bleedin’ obvious is a “lie”.
Debt matters as a reflection of your ability to pay it back. If I owe a million pounds, it’s a crisis. If Bill Gates owes a million pounds, it’s an accountancy error. The same thing applies to nations. A country with a growing economy and growing tax revenues can service more debt. Debts that would force Henry VIII to nationalise the monastries are trifling to us because our GDP has grown.
Failing to understand this marks a journalist out as a numbskull, not a populist hero. It’s not even that hard to relate to day to day life. Mr F Nelson is political editor of The Watcher. He earns £50,000 and has a mortgage of £200,000 with repayments of £12500 a year. He has a debt to annual income ratio of 400%! Debt repayments take up a quarter of his income! Eeeek!
Fortunately, the next day he is made political adviser to the leader of the keepthingsthesame party at a salary of £400,000. He now has a debt to annual income ratio of 50%, and the cost of servicing that debt is a tiny 2.5% of his income.
If you can’t get that… choose this… (from the incomparable Beau Bo D’Or)