High public debt = low economic growth ?

michaels

Problem is though to the press it is MMR all over again - the 'orthodox' theory has been challenged and therefore now views in favour of and against the orthodoxy have equal weight:

http://www.bbc.co.uk/news/magazine-22223190

We all know how this turned out with MMR

The basic maths of how a large debt is unsustainable is very simple but is nonetheless beyond many of those in the political/media who are more likely to be 'arts' majors and thus just like MMR a single challenge to a position is felt to carry equal weight, especially if it is also a story that resonates with the political beliefs of those same media arts graduates.

And it is such a nice idea, that spending more than earning can carry on indefinitely who would not want to believe it.

CLAPTON

The maths of the unsustainability of large debts isn't simple atall.

It is the subject of endless acedemic papers that compare it to the consequences of reducing the debts.

Higher taxes or lower debts is not a clear cut decision.

The comparison is not whether no debts are better or worse than high debts (a no brainer) but is the pain of debt reduction worse than servicing the debt.

So do we end up with a lower GDP is we go for rapid debt reduction (higher taxes and /or massive cuts in government spending) or simply continue serviceing the debt over the longer term.

Generali

michaels wrote: »

And it is such a nice idea, that spending more than earning can carry on indefinitely who would not want to believe it.

You're right. To anyone that doesn't have a grasp of maths at a moderate level it's a great idea.

GDP = 100, debt = 90, interest rate = 5%, Government spending = 40.

Cost of debt servicing = 4.5 = ~11% of Government spending. Are we going to increase taxes by 11% or cut Government services by 11%? Or just keep borrowing until there are no more lenders.

Thrugelmir

michaels wrote: »

And it is such a nice idea, that spending more than earning can carry on indefinitely who would not want to believe it.

If they read properly Keynes properly. Then they would realise that Keynes said that savings should be set aside in the prosperous times to pay for the downturns. Brown elevated himself above this with his now infamous no more boom or bust speech. The current Labour party's leadership's economic strategy appears to follow now disproven lines still.

tomterm8

Thrugelmir wrote: »

If they read properly Keynes properly. Then they would realise that Keynes said that savings should be set aside in the prosperous times to pay for the downturns. Brown elevated himself above this with his now infamous no more boom or bust speech. The current Labour party's leadership's economic strategy appears to follow now disproven lines still.

To be fair there are no followers of Keynes anymore, no more than there are of Hayek. Keynes ideas make sence in a gold backed currency; our currency is not on a gold standard.

What you get is neokeynes ideas, where neo basically means 'not'.

Thrugelmir

tomterm8 wrote: »

To be fair there are no followers of Keynes anymore,

Really........

Ed Balls is right on the economy – but the public aren't ready for Keynes

Isn't that Plan B ?

(Guardian December 2011).

tomterm8

Thrugelmir wrote: »

Really........



Isn't that Plan B ?

(Guardian December 2011).

Follower is the sense of doing what keynes said should be done.

You can say you are anything. I could say I was a thatcherite, but she wouldn't agree.

Thrugelmir

tomterm8 wrote: »

Follower is the sense of doing what keynes said should be done.

You can say you are anything. I could say I was a thatcherite, but she wouldn't agree.

I would be concerned to expose myself to a another political economic experiment. When the previous one so obviously failed.

tomterm8

Thrugelmir wrote: »

I would be concerned to expose myself to a another political economic experiment. When the previous one so obviously failed.

Well if you don't want a political economic experiment, you've started from the wrong place. Everything anyone has done since the financial crises has been an economic experiment.

We are not in kansas anymore.

Thrugelmir

tomterm8 wrote: »

Everything anyone has done since the financial crises has been an economic experiment.

I would go back some years to 1997 to the start. From 2005 onwards the Lone Ranger was on his own as Tonto disagreed with him as well from that point.

The main theory that markets could self regulate with minimal supervision has been proven disastrously wrong.