Humphreys fails to tell the whole picture on debt

When interviewing Ed Balls on the Today programme this morning, John Humphreys cited a McKinsey study to claim the UK’s debt-to-GDP ratio was 469 per cent – “the highest in the world”, yet fails to clarify the full meaning of this figure nor put it into context.

The report in question, ‘Debt and deleveraging: The global credit bubble and its economic consequences’ in fact shows the 469% figure to be the debt ratio for “domestic private and public secor debt” (exhibit 1, page 10); when broken down into different sectors, however, government debt is 52 per cent (exhibit 20, page 7) – lower than Japan (188%), Italy (101%), France (73%), Germany (69%), Brazil (66%), India (66%), Canada (60%) and the USA (60%).

Sectoral-composition-of-debt

The report also says (page 14):

Many historic examples, from the US in the 1930s to Japan in 1997, show the danger of withdrawing support of the economy too soon.

Listen to the interview in full here, and read a transcript of the key lines below:

John Humphreys: “You dismissed entirely the question of how much we are now in debt and you say that I got it from a book [Rawnsley's book] I didn’t, I got it from a McKinsey study, an outfit that you respect hugely, of debts of the world’s major economies, and on that basis I’ll give you a quick figure here, the UK’s debt to GDP ratio was 469%, the highest in the world, 459% for Japan…”

Ed Balls: “What debts do you include in that?”

JH: “All of them, the whole lot, your debts, public debts, family debts, mortgage debts, the whole lot, you encouraged a huge amount of spending…”

EB: “You’re making me rather more powerful than I thought, I didn’t realise I could be responsible for the debts not just of the government but every company, every household…”

JH: “The Government encouraged massive borrowing and never said hold on a moment.”

EB: “Absolute nonsense John, the fact is we had low interest rates, the fact is we had low inflation, an people were borrowing, we had a million more home owners and that was a good thing, what happened was a huge financial crisis which put deficits and debt up round the world, it’s on a scale of 1929, but the question is, do we learn the lessons of history?

“And the fact is, the last person to say we’ve got to cut spending and deficits now immediately before Margaret Thatcher was Ramsey MacDonald in 1931, and in my view David Cameron and Nick Clegg are repeating the MacDonald mistake of 1931, I fear that we’re gonna go into a period of profoundly lower growth and higher unemployment. This is a very, very dangerous time, and what you need from Labour is a candidate who actually understands the economy and can take the argument to the Conservatives.”

http://twitter.com/demontrout/status/18452425457 Simon Davies

Has Britain really got the highest debt in the world? http://bit.ly/aemfto
http://twitter.com/teamedb/status/18452596275 Ed Balls’ team

RT @leftfootfwd: Humphrys fails to tell the whole picture on debt: http://bit.ly/9MRxf1
http://www.brightgreenscotland.org Adam Ramsay

Thanks for this – helpful.
Malcolm Armsteen

Excellent blog. Humphrys is a past master at this sort of sandbagging, playing very fast and loose with the facts. Sadly, Fisking him won’t make it onto Today.
http://twitter.com/vernon4gedling/status/18453314289 Vernon Coaker MP

RT @TeamEdB: RT @leftfootfwd: Humphrys fails to tell the whole picture on debt: http://bit.ly/9MRxf1
http://bristolwireless.net Peter Ferne

> The report in question, ‘Debt and deleveraging: The global credit bubble and its economic consequences’ in fact shows the 469% figure to be the debt ratio for “domestic private and public secor debt”

Surely JH _did_ explain that in the exchange you quote: “All of them, the whole lot…”.

And I think you have a missing qualifier in your emphasised passage in the second paragraph:

> when broken down into different sectors, however, [govt. debt] is 52 per cent
http://twitter.com/timothygodfrey/status/18455517851 Timothy Godfrey

RT @leftfootfwd: Humphreys fails to tell the whole picture on debt: http://bit.ly/9MRxf1
John77

@ Simon – No, whether you take it as an absolute amount or as a % of GDP (excluding foreign borrowing/lending by UK banks which is a distortion).
However, it is far too high and climbing too fast. The figures quoted are for end-2008 and since then we have almost certainly overtaken Japan in terms of debt as a % of GDP. Also, is being second-worst anything of which to be proud?
The horrifying statistic is that, according to the McKinsey report that Shamik Das wishes to quote to support his argument, debt rose by 157% of GDP in eight years 2000-8 despite the write-down of existing debt by Brown’s inflation policy [CPI inflation has been, on average, 1% less than RPIX, the best, most honest, index so his target of CPI of 2% meant that all existing debt was reduced by one-quarter in real terms in 8 years] – so the new debt in 8 years of Brown’s mismanagement was equal to all the debt that had been built up in the previous 800 years. The rise in debt accelerated after the end of 2008 but Ed Balls wouldn’t want to mention the extra £200 billion of government deficit that John Humphreys excluded. If McKinsey had shown specific data for the period from 1997 to 2010 they would show that the new debt in that period was much greater than the accumulated debt from the previous 1300 years (but some people would claim it was distorted by the last UK sovereign debt default that ruined the Medicis)
John Lees

And your point is? We still have a lot of debt however you look at it. What sort of crass logic says we should borrow more because they might lend it to us for now. We need to be fair to our children and pay it off.
http://twitter.com/scrumpymoet/status/18457983286 Andrew Breading

RT @leftfootfwd: Humphreys fails to tell the whole picture on debt: http://bit.ly/9MRxf1
http://twitter.com/bobski67/status/18459672681 Rob Watson

Humphreys fails to tell the whole picture on debt: http://bit.ly/9MRxf1 (via @leftfootfwd)
Steve

“and what you need from Labour is a candidate who actually understands the economy”

That keeps Balls out then. Perhaps we could lend them Redwood for a while to run some courses.
http://www.shamik.co.uk Shamik Das

Thanks Peter – my fault, I’ve corrected it. I think the main point is that you cannot blame the government for all debt; by all means, talk about the 52 per cent figure (which, as the graph shows, is lower than many of our competitors) but I think it is grossly unfair to blame Ed for a 469% total debt:GDP ratio.
john

Why does this Government Debt keep changing in every article I read, this article says 52%. In other articles on this blog it’s been 62%, and 68%.It does get confusing please explain!