Tuesday, January 24, 2012
The Debt Lie
Over the past few years a myth has developed in Europe that nations presently facing austerity caused the problem by too much government debt during the good years.
This chart that shows dept levels of Ireland, United Kingdom debt per GDP vs the World, the EU and the Euro area shows this simply not to be true.
In reality Ireland, Spain and the UK had very low levels of debt, not only compared to the EU but to the entire world before the 2007 recession.
But it does not stop there: Spain continues to have low levels of debt by both a European and EU standard. The United Kingdom's debt has risen but is still only at the global average. Only Ireland has seen its debt rise well above the EU level.
Much of this raised debt caused by the slow down of the economy, but in the case of Ireland, and to a lesser degree the UK a banking collapse had a lot to do with it. In all three a major housing boom also contributed to the raised debt.
So in the EU outside of Greece, which is a minor economy but gets a lot of attention because it confirms the conservative bias of governments, the cause of raised government debt was NOT previous high spending on government services. In fact the PIIGS + UK economies show a tendency to have had solid debt performance in the years running up to the collapse. The issue was a dependency on banking and property to drive the economy.
In fact with the collapse of banking and property as engines of growth, and the lose of industrial production in much of the west, economies like Spain, the UK and Ireland are now precisely more dependent upon government to keep them from collapsing further. It will takes decades to rebuild industry, if that is even possible, and probably a decade or more to rebuild the value of housing, and the banks are in terrible shape. In the case of the UK and Ireland the economies have turned to debt spending to keep themselves alive. The problem has been public finances are being used to secure the incomes of a small minority of very wealthy people who work at banks while cutting support to the poorer elements in society.
This austerity, built more upon a myth than a reality, means that the banking sector retains its power and the members of it retain their status and wealth while the people suffer unemployment, poverty, and even in growing cases homelessness, cold and hunger. It shows the negative extent to which the free market fetish as distorted our moral and social values, where the mistakes of the rich and powerful are paid for by the innocent and poor.
In the UK among Tory voters I have witnessed first hand a really ugly brand of social hatred that always turns my stomach. Well off Tory voters are now prone to rant about abuses of upper middle class, about their over spending and their pursuit of fun from 2000 to 2008 as an excuse for further cuts, cuts that are more likely to hit the people who not only did not enjoy the fruits of that time, but actually saw their own status fall.
Austerity has imposed a cruel anti-social injustice upon the societies in which it has taken hold, were the haves justify austerity by pointing to their own waste to justify even further inequality.
But something happened to this, like to most myths: it has collapsed.