vim, my dad says thats irrelvant
The problem is not so much public debt as a proportion of GDP - our percentage is fairly OK by international standards. The problem is the deficit ie annual public expenditure is substantially greater than annual public income - I think the difference is about £12bn pa or 11%/12% of GDP. This is one of the higher deficits in the global economy and unsustainable.
is he right?
Well, that depends on what he means. UK public debt to GDP is reasonably high by international standards (70% = 22nd highest in world), although it is low by historical standards. Looks like we both agree that a deficit is an excess of expenditure over revenue by definition, but I don’t know what to make of a statement like “the problem is the deficit, ie annual public expenditure is substantially greater than annual public income” In what sense is it the problem? In what sense does it make sense to think of a deficit in terms of sustainability? A deficit is a flow of net expenditure over time—it is transitory: next year it won’t exist. Problem disappears in a flash of smoke.
We do have one of the higher deficits as a % of GDP, he’s right about that. But otherwise, erm, no, in my opinion he’s talking arse. A strong recovery will eradicate the deficit. The real issue is how much of the national income (i.e. GDP) will we have to use up servicing the debt. You can think of the debt as the sum of all previous deficits, and the limiting case as the maximum debt burden you can carry while still making principal payments. The generic conservative fiscal Armageddon fantasy involves the interest payments exceeding our ability to pay, and consequently the debt spiraling out of control. Imagine a credit card where you can only afford to pay off half the interest payments every month. Every month the amount you owe is getting bigger and bigger.
That is unsustainable.
Ireland is going to have to spend 10% of national income servicing its debt every year for decades.
That is also unsustainable. We’re fine. Just a bit retarded.