Guardian UK: The slow shuffle that sees Britain condemned to a life of debt

The slow shuffle that sees Britain condemned to a life of debt
The idea that debt can create wealth has been dealt a death blow by the credit crash. So why does the government persist in viewing lending as the answer?

Deborah Orr
The Guardian, Thursday 9 December 2010


Considering the term "credit crunch" is perfectly self-explanatory, while the term "credit crash" is yet more graphic, it is amazing that there is so little political will to understand quite what went wrong in the global markets over the years that led up to the seismic revelation of collapse that has been defining our times ever since. The western world became intoxicated with the idea that the creation of debt – any old debt, not just, or even, boring, sound investment – was the creation of wealth.

Old habits, it seems, die hard. Governments are still at it. The coalition is still at it with student loans, merrily lending money to individuals, instead of investing it in the institutions that educate them, because in the future – they hope – they'll get it back with interest. This has little or nothing to do with reducing the deficit now. The institutions will get their money all the same, even though the risk being taken in lending it for interest rather than investing it for future boffinry remains with the government. All the institutions have to do is attract lots of students, in a "competitive market", and charge them as much as they can get away with, up to that £9,000 a year. Getting a degree will be like getting a mortgage. Safe as houses.

Safe as countries that thought houses were safe. Like a lot of countries. Such as Ireland. Supposedly "bailed out" by its generous European neighbours, it is actually being lent money that it will be expected to pay back with interest. Another fine investment for the future, its motivation clearly residing in the fact that Irish default would leave European banks exposed to Irish debt to the tune of £650bn, the UK and Germany featuring large in the reckoning. Well worth putting that off until the upswing comes, and the bailed-out banks can be sold again, at a profit.

Ah, yes, that upswing – the one that borrowing for investment will produce, just as our government is doing the opposite, and "reducing the deficit". The deficit. Again and again, intelligent people repeat that the deficit was created by the bailing out of the banks. But it wasn't. The money spent on bailing out the banks is part of the national debt – somewhere around £350tn. The deficit is the gap between what the government is spending each year and what it is earning. This is currently nearly £110bn, money that will keep on having to be borrowed at interest each year unless it is made to go away through a mix of cuts and tax rises. Many people prefer the emphasis to be on tax rises, even though Britain boasts no fewer than 30 million taxpayers, all paying more in direct or indirect tax already. Sure, tax avoidance is an issue, but one that is difficult to solve without the unlikely advent of global governance. ..........(more)

The complete piece is at: http://www.guardian.co.uk/commentisfree/2010/dec/09/deborah-orr-deficit-economic-policy

and the supply siders are winning, to our chagrin.