John Major hits the nail on the head!

“Normally in years when you have a good economic record you begin to repay debt to bring the deficit down…since 1999, even in good years with a boom, the debt has risen. Now the boom has gone, we have the debt and we have the problems of the recession adding to that on a daily basis.”


28 thoughts on “John Major hits the nail on the head!

  1. Factually wrong I’m afraid. I would say that it’s a lie but it appears that it’s a complete economic illiteracy that we’re seeing here.

    Gordon Brown paid down the debt after 1999. In fact he has delivered more budget surpluses than any Chancellor since the second world war.

    It’s nice to see Major talking about being frank about what needs to be done. It’s a shame he didn’t do that before the 1992 election instead of deceiving people over his tax plans.

  2. The most important facts we need (and people know) today:

    a) We’re in a recession.

    b) There’s a budget deficit.

    Everything else means very little to families and individuals going through economic hardship this season.

  3. Well I think there are a lot of issues that concern people including unemployment and the policies that we need to protect jobs etc.

    The fact that there’s a budget deficit is not of interest as it’s the size of the budget deficit that matters not it’s existence.

  4. There is always room for borrowing. I’m sensing from the direction of your comments that you are on the verge of humiliating yourself. You might want to do a little research before saying anything else.

  5. LMAO. I’ve never seen such a hopeless attempt to conceal ignorance. Your question doesn’t even make sense. I notice that your comments are incredibly short but I’m afraid that’s their only redeeming feature.

  6. I am not interested in waffle as it does not prove anything. I guess you don’t like questions that limit your answers.

  7. Hmmm… Jack you seem very particular about your facts, perhaps you could enlighten us with the budget deficit when labour came into power and what it currently stands at? Sorry, let me re-phase my question, what was the budget surplus when Labour came to power and what is the current level of the deficit?
    While you’re at it maybe you could begin to answer why we now pay more tax than ever before in our countries history, yet deficit has increased while state services are worse than ever?

  8. Also Jack, I did enjoy your quip at Majors tax plans, because no one associates stealth taxes with this labour government.

  9. zaza you keep trying to avoid discussing the issue. You try to imply things through questions because you don’t want to say these things out loud. You know full well that the things you say will make you look a bit silly. Perhaps you could explain your last question as it was rather meaningless. Seriously what on earth are you talking about?

    The original post was factually inaccurate despite being extremely short. If that’s your idea of hitting the nail on the head, I seriously hope that you avoid any DIY.

    David, you got off to a good start with your first sentence then messed up a little by reffering to a budget surplus in 1997. I hate to break it to you, but there was no surplus in 1997.

    As for the deficit today, it is regrettably high, and I’m glad that we didn’t heed Tory calls for widespread tax cuts while Brown was reducing the debt burden.

    The tax burden today is estimated at 35.3% of GDP (probably a bit lower given today’s news though I’ll have to look at the details) (house of commons library) while in 1989-1990 it was 35.4% of GDP (IFS). The tax burden increased under the last conservative government.

    To be fair, the tax burden does vary as a share of GDP over economic cycles; so perhaps you are refferring to real-terms changes in revenue which can be pretty hopless for other reasons. Cyclically adjusted figures are spurious rather than misleading.

    So no solid arguments from zaza and factually inacurate ones from David but otherwise an amusing little duet.

  10. You claimed that there is pragmatic room for borrowing. I don’t think there is because I believe that govt should spend within its means for the most part. It’s your turn now to explain your advocacy of unlimited govt borrowing.

  11. Governments borrow in more years than they produce surpluses. The key objective is to keep the debt/gdp ratio reasonably healthy. Economic growth and inflation erode debt, so a 1% average deficit year on year would be very strong.

    In fact if trend growth can be held at 2.5% with inflation of 2.5% (hence nominal GDP growth of roughly 5%) and if the deficit can be held at 2% then the debt will stabilise at around 41% of GDP no matter what the starting level of debt. (This is the result of higher levels of debt being more heavily eroded as a share of GDP by inflation and growth.) This might sound strange but you have to remember that this is the point where the effect of inflation and growth is roughly equal to the effect of borrowing at 2% of GDP.

    This partly explains the mid-term financial strategy (MFS) of 1980. Since the war there have been roughly 10 years in which a surplus has been recorded (comparisons between now and the 1940s/1950s can be difficult due to adjustments to the structure of the financial year). Those years were: 1949, 1951, 1970, 1971, 1988, 1989, 1999, 2000, 2001. (All but three under Labour governments)

    The debt burden however, which peaked at over 250% of GDP after the war fell under every post war government as a result of the reasons above. (The low bond yield inherited from pre-war governments also played a role.)

    So not only is creating a long-term balanced budget an almost impossible task but it is also a completely unescesary one.

  12. I understand your point Jack and I agree with what you are arguing for the most part. However, that does not explain the unreasonable levels of national debt that the country is in.

    Like you said, it’s not about the existence of a deficit but rather the level or degree of this deficit.

  13. “You claimed that there is pragmatic room for borrowing. I don’t think there is because I believe that govt should spend within its means for the most part.”

    So there is room for borrowing?

  14. What difference does that make? If anything the presence of that word strengthens my position in shifting the debate toward the practical considerations that I have outlined over the ideological goal of a balanced budget.

  15. Let me remind you that you claimed there is unlimited room for borrowing. You have, as of yet, failed to explain how such a notion is feasible and practical.

    Hypothetically -> Yes, in theory, I can go shopping and use up all my credit limits on cards but in practice this is not viable.

    Of course, govt borrowing is very different to individual borrowing however, both have limitations in their own right.

  16. “Let me remind you that you claimed there is unlimited room for borrowing. ”

    Totally false. I said that there is always room for borrowing not that borrowing should be unlimited. You can reduce the debt burden while still borrowing and I have spelt out in very clear terms how this can be achieved. Obviously you haven’t the faintest clue how government debt works so let me refer to your analogy.

    It is viable to constantly borrow on credit cards provided that you maintain a viable ratio of debt to earnings. If my credit card debt rises from £500 to £5000 while my earnings rise from £20,000 to £250,000 a year, then the debt burden has fallen.

  17. Indeed, therefore there is not ‘always room for borrowing’, there is only room for borrowing when debt burden is managed and reduced which means that a viable ratio of debt to earnings must be maintained, as you said yourself.

    However, you claimed that:

    “There is ALWAYS room for borrowing” which means borrowing can be unlimited. You did not mention that there are terms and conditions that apply. I understand now that you have changed your mind and that you are taking a more sensible approach to government spending.

  18. I have explained this very clearly to you and it’s a pity that you can’t grasp these simple concepts.

    Saying that there is always room for borrowing is not the same as saying that borrowing can be unlimited. There is always room for borrowing in that you can borrow year on year. You can borrow in every financial quarter and still hold the debt burden down.

    When a doctor tells you that you can ‘always breathe’ that does not mean that you can hyper-ventilate without negative consequences. Now S.Zaza, if a healthcare worker has told you that you can always breathe, I seriously hope that you are not about to go into some kind of dizzy-headed fit. (Though I doubt we would notice any difference in your posts).

    I also love the way that you seem to imply that budget deficits are a result of government spending when the growth of the deficit actually has more to do with a fall in revenues.

    We can continue to borrow and we may never produce a budget surplus for the next 500 years (so always borrowing) and still maintain a healthy debt/gdp ratio.

    In fact when levels of debt are higher, higher budget deficits become perversely more sustainable in one sense at least. For example 5% nominal GDP growth will result in a depreciation in the debt/GDP ratio of about 12% when debt starts at 250% of GDP; but will only reduce the debt burden by roughly 2% when the debt starts at 50% of GDP.

    Years of zero or negative growth are rare and the long-term trend in the UK is for gradual inflation and trend growth of 2-2.75%. So even in a recession, it has to be recognised that the key way of dealing with the national debt is to ensure that we reduce the deficit but continue to borrow to invest: thus ensuring a medium-term reduction in the debt/GDP ratio. There is room for borrowing in every financial quarter (ALWAYS ROOM FOR BORROWING) because over time that debt will be eroded in both real-terms and in relation to UK GDP.

    The alternative of lunging for a balanced budget would destroy growth, probably lead to deflation and could even result in continual budget surpluses combined with a rising burden of debt.

    Let me now ask you a question. You imply that there are years when there is no room for borrowing. Which years since 1945 to the present day do you have in mind and what would you propose as an alternative?

  19. You’re asking a ridiculous question expecting me to give a ridiculous answer.

    There is always room for borrowing SO LONG AS the debt burden is kept low. Nothing more to it. You, however, refuse to accept that your ‘always room for borrowing’ doctrine, to begin with, ignored the crucial circumstances in which borrowing can take place. Now you’re elaborating and making more sense.

    Thanks for the knowledge. :-)

  20. “You’re asking a ridiculous question expecting me to give a ridiculous answer.”

    Half right. It’s a very straight forward question.

    You’ve not understood any of this because even when the debt burden is high there is room for borrowing. Borrowing in those circumstances might have to be reduced but not eliminated.

  21. That’s right, borrowing will have to be reduced therefore be limited, therefore borrowing is not ‘always’ and therefore not ‘unlimited’.

    You’re argument is fundamentally sound but your way of explaining it came across as very dogmatic.

  22. I posted a link on the 21st but it hasn’t appeared. (It says it’s awaiting moderation). I also tried to post links on the minimum wage debate but they didn’t appear.

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