An economics lesson for the growth deniers

By Ken Livingstone, Labour candidate for London Mayor 2012

Ken-Livingstone-CBI-speech
This Thursday on Question Time there was what Mrs Merton used to call a ‘Heated Debate’ over the scale of the British economy’s debt under Labour. Niall Ferguson and I disagreed about the scale of the national debt and what should be done about it. Niall argued that the scale of the debt when Labour left office was over seventy per cent. The right wing writer Toby Young was quick to praise Ferguson’s view on his Telegraph blog.

Here’s why they are wrong. The only way to get to the 70%-plus figure is to use the Maastricht Treaty criteria which is ‘general government debt’. That is an inflated figure arising from the Maastricht process. It excludes government assets – such as departmental balances, central bank reserves, pre-funded liabilities, and so on.

The more useful measure, certainly the one focused on in this country, is the government net debt. That is because it is sensible and logical to include government assets in the calculation.

For example, Ireland was not allowed to count its national pension fund against general government debt. But that turned out to be real money – it was the first thing they raided when the EU and IMF came calling. And government net debt allows long-term comparisons. Indeed for most of the time prior to the Maastricht treaty this odd measure of debt was of course not recorded.

In truth Labour inherited a public sector net debt of 42.5% of GDP. This fell steadily to below 30% in 2002 and then started to rise. It was 43.3% in 2009 before the recession and only with the most severe global recession since the 1930s did it rise to 52.7% in 2010 when Labour left office. [Source: http://www.statistics.gov.uk/cci/nugget.asp?id=206]

Deficits always rise in recessions – that’s unavoidable. But the deficit actually rose by a far greater amount during John Major’s much milder recession of the early 1990s.

Quoting lots of odd sources is an old trick of the right, for example relying on future pensions liabilities but neglecting to mention pension assets, such as the pay of the people contributing towards them. Why is this important? It is not a dry academic debate about economic figures. The right uses rhetoric about government debt to justify its assault on the public services and public spending.

Specifically, the fact that between 1997 up to the point of the recession debt as a proportion of GDP was relatively stable and in fact fell over part of the period – and was lower than in many other developed countries – shows that it is not public spending that is the enemy. The right don’t want you to believe that. They want to say that it is profligacy in Britain under the last Labour government that has to be dealt with. Hence ‘deficit denial’. Thus whether debt was out of control prior to the recession is key.

A narrative in which public spending is the problem leads inevitably to making ordinary people pay through fares, VAT, student fees, and cuts to services – rather than an alternative narrative in which the economy is made to work for those people, putting investment, fairer taxes and growth ahead of austerity for the majority.

The problem for the right is this. In the name of reducing the deficit they are pursuing policies that cut spending, reduce employment, remove demand from the economy and therefore worsen the deficit. Initially the Office for Budget Responsibility had projected a public sector net borrowing requirement of 7.5% and 5.5% of GDP in what was then the next financial year and in the following financial year 2011/12.

Now these have risen to 7.9% and 6.2%. This gives the lie to the central claim of government policy – that all these cuts are necessary to reduce the public sector deficit. Their policies have led to a renewed widening of the deficit.

These are among the main reasons why I will be marching – along with London Young Labour and other London Labour colleagues – today. There are clear alternatives to the right’s case. The growth deniers need to understand there is widespread public concern about what the government is doing in the name of deficit reduction.

http://twitter.com/rimonseed/status/51542804828143616 Simon Reed

RT @leftfootfwd: An economics lesson for the growth deniers: http://bit.ly/hyVE1T by @Ken4London #BBCQT @March26March
http://twitter.com/oldmankelv/status/51544624103301120 Kelvin John Edge

RT @leftfootfwd: An economics lesson for the growth deniers: http://bit.ly/hyVE1T by @Ken4London #BBCQT @March26March
http://twitter.com/johncarter2000/status/51545599190908928 John Carter

There seems to be an impession afoot that public wealth isn't wealth at all K.L. refers to that here: http://bit.ly/hyVE1T #March26March
http://twitter.com/daf_adley/status/51546075659636737 David ‘Daf’ Adley

RT @leftfootfwd: An economics lesson for the growth deniers: http://bit.ly/hyVE1T by @Ken4London #BBCQT @March26March
http://twitter.com/johncarter2000/status/51546707741253633 John Carter

There seems to be an impession afoot that public wealth isn't wealth at all. K.L refers to that here: http://bit.ly/hyVE1T #cuts #ukuncut
http://twitter.com/studentsw_katie/status/51548292563214336 Katie

RT @leftfootfwd: An economics lesson for the growth deniers: http://bit.ly/hyVE1T by @Ken4London #BBCQT @March26March
http://twitter.com/fletchersimon/status/51548400939839488 Simon Fletcher

RT @leftfootfwd: An economics lesson for the growth deniers: http://bit.ly/hyVE1T by @Ken4London #BBCQT @March26March
http://twitter.com/ken4london/status/51550090048966656 Ken Livingstone Team

K: My article for @leftfootfwd after #bbcqt debate with Niall Ferguson on govt deficit and cuts http://bit.ly/hyVE1T #26March
http://twitter.com/johncarter2000/status/51550296509394945 John Carter

There seems to be an impession afoot that public wealth isn't wealth at all. K.L refers to that here: http://bit.ly/hyVE1T #march26 #cuts
http://twitter.com/aaron_kiely/status/51550316470075392 Aaron Kiely

RT @ken4london: K: My article for @leftfootfwd after #bbcqt debate with Niall Ferguson on govt deficit and cuts http://bit.ly/hyVE1T #26 …
http://twitter.com/jcswindells/status/51550981145640961 Jenny Swindells

RT @ken4london: K: My article for @leftfootfwd after #bbcqt debate with Niall Ferguson on govt deficit and cuts http://bit.ly/hyVE1T #26 …
http://twitter.com/deardaveandnick/status/51551253473394688 Bern O’Donoghue

RT @leftfootfwd: An economics lesson for the growth deniers: http://bit.ly/hyVE1T by @Ken4London #BBCQT @March26March
http://twitter.com/johncarter2000/status/51551638816698368 John Carter

There seems to be an impession that public wealth isn't wealth at all. http://bit.ly/hyVE1T #tuc #bigsociety
http://twitter.com/sambrowse/status/51551896053350400 Sam Browse

RT @fletchersimon: RT @leftfootfwd: An economics lesson for the growth deniers: http://bit.ly/hyVE1T by @Ken4London #BBCQT @March26March
http://twitter.com/johncarter2000/status/51552011988107264 John Carter

There seems to be an impession that public wealth isn't wealth at all. http://bit.ly/hyVE1T #economics #march26
http://twitter.com/johnellison/status/51552232436543488 John Ellison

RT @ken4london: K: My article for @leftfootfwd after #bbcqt debate with Niall Ferguson on govt deficit and cuts http://bit.ly/hyVE1T #26 …
http://twitter.com/bethanyusher/status/51552955794591744 Bethany Usher

RT @ken4london: K: My article for @leftfootfwd after #bbcqt debate with Niall Ferguson on govt deficit and cuts http://bit.ly/hyVE1T #26 …
http://twitter.com/godard_girl/status/51553947101560832 Ruth Nixon

RT @ken4london: K: My article for @leftfootfwd after #bbcqt debate with Niall Ferguson on govt deficit and cuts http://bit.ly/hyVE1T #26 …
http://twitter.com/dlknowles/status/51554463860797440 Daniel Knowles

RT @leftfootfwd: Whenever I hear someone put across this half-baked Keynesian crap, I want to cry… http://bit.ly/hrV8Yc
http://twitter.com/johneaustin/status/51555278314938368 John Austin

RT @ken4london: K: My article for @leftfootfwd after #bbcqt debate with Niall Ferguson on govt deficit and cuts http://bit.ly/hyVE1T #26 …
http://www.order-order.com Guido Fawkes

Some of us actually contribute to economic growth by creating wealth generating enterprises, you just tax it.
http://twitter.com/jon2aylor/status/51557612554158081 Jonathan Taylor

RT @ken4london: K: My article for @leftfootfwd after #bbcqt debate with Niall Ferguson on govt deficit and cuts http://bit.ly/hyVE1T #26 …
http://twitter.com/sarahdarer/status/51558755611058176 Sarah H

RT @leftfootfwd: An economics lesson for the growth deniers: http://bit.ly/hyVE1T by @Ken4London #BBCQT @March26March
Lauro

@guido

Hardly an option for everyone in society now, is it?
http://twitter.com/sean__butcher/status/51560763957051392 Sean Butcher

RT @ken4london: K: My article for @leftfootfwd after #bbcqt debate with Niall Ferguson on govt deficit and cuts http://bit.ly/hyVE1T #26 …
James Mack

What a silly little comment, as always, from Paul Staines.
http://twitter.com/kevingulliver/status/51563022665269248 Kevin Gulliver

RT @leftfootfwd: An economics lesson for the growth deniers: http://bit.ly/hyVE1T by @Ken4London #BBCQT @March26March
http://twitter.com/jod45/status/51563079464521728 John O’Donoghue

RT @ken4london: K: My article for @leftfootfwd after #bbcqt debate with Niall Ferguson on govt deficit and cuts http://bit.ly/hyVE1T #26 …
http://twitter.com/benfolley/status/51563208623919104 Ben Folley

Ahead of todays demo, Ken challenges the rights rhetoric on deficit and growth http://t.co/ASRSSro @ken4london
http://twitter.com/8minstosunrise/status/51564379765874688 Milena Buyum

RT @ken4london: K: My article for @leftfootfwd after #bbcqt debate with Niall Ferguson on govt deficit and cuts http://bit.ly/hyVE1T #26 …
http://twitter.com/ladymissp/status/51564448300793857 Pamela

RT @benfolley: Ahead of todays demo, Ken challenges the rights rhetoric on deficit and growth http://t.co/ASRSSro @ken4london
http://twitter.com/falltravlthrow/status/51565840180588544 FallTravlThrow

An economics lesson for the growth deniers | Left Foot Forward http://bit.ly/idkKh8
http://twitter.com/goteamalice/status/51566701497688064 Alice Perry

. @Ken4London gives an economics lesson for the growth deniers http://bit.ly/hrV8Yc (via @leftfootforward) #26March
http://twitter.com/acogofchange/status/51568068836597761 A Cog of Change

RT @leftfootfwd: An economics lesson for the growth deniers: http://bit.ly/hyVE1T by @Ken4London #BBCQT @March26March
http://twitter.com/thp124/status/51570074657628161 Ray Sirotkin

RT @leftfootfwd: An economics lesson for the growth deniers: http://bit.ly/hyVE1T by @Ken4London #BBCQT @March26March
http://www.nosacredcows.co.uk Toby Young

You’re now referring to public sector net debt as a percentage of GDB, Ken, whereas on the programme you used the words “national debt”. Our national debt as a percentage of GDB when Labour left office was 71.3% according to the ONS (http://www.statistics.gov.uk/cci/nugget.asp?id=277).

Even if we give you the benefit of the doubt and accept that you meant “public sector net debt” when you said “national debt”, you were still wrong. On Question Time, you said it was 40% when Labour left office, whereas you now admit it was much higher than that. So even by your own account you were wrong.

This isn’t a very robust defence is it?
http://twitter.com/wildewodehouse/status/51573903994261504 James Stewart

RT @ken4london: K: My article for @leftfootfwd after #bbcqt debate with Niall Ferguson on govt deficit and cuts http://bit.ly/hyVE1T #26 …
http://twitter.com/jaynebfisher/status/51576759681945601 Jayne Fisher

Good reading for all headed for #26march demo http://bit.ly/efDZKB @ken4london challenges right on economy and need for investment not cuts
http://twitter.com/8minstosunrise/status/51578980939210752 Milena Buyum

RT @JayneBFisher: Good reading for all headed for #26march demo http://bit.ly/efDZKB @ken4london challenges right on economy and need fo …
http://twitter.com/joederrett/status/51579405805420545 joe derrett

RT @benfolley: Ahead of todays demo, Ken challenges the rights rhetoric on deficit and growth http://t.co/ASRSSro @ken4london
http://twitter.com/joederrett/status/51579437547917312 joe derrett

RT @ken4london: K: My article for @leftfootfwd after #bbcqt debate with Niall Ferguson on govt deficit and cuts http://bit.ly/hyVE1T #26 …
Ian

Toby still doesn’t get it and I’ve explained it countless times. The government defines national debt as ‘Public Sector Net Debt’, they are the same thing. I fear for the pupils at your school I really do.
http://twitter.com/hannah_claire_l/status/51580065980497920 Hannah lawrence

RT @leftfootfwd: An economics lesson for the growth deniers: http://bit.ly/hyVE1T by @Ken4London #BBCQT @March26March
Ian

Here are the national deficit figures Toby ignores:

http://www.statistics.gov.uk/pdfdir/psf0311.pdf

Toby, please grasp that your figure is not the national debt figure, it is the government gross debt which is completely different and has NEVER been used as a measure of national debt.
http://twitter.com/dafidius/status/51582574002307072 DPWF

@toadmeister Both wrong. It was 43.3% in 2009 and rose to 52.7% in 2010 due primarily to bailouts and recession. http://bit.ly/idkKh8
polittiscribe

Just one word you seem to have forgotten Ken – PFI. You remember don’t you? That little trick you used to put off paying the bills for another generation. Bet you’re children and grandchildren won’t forget though…
http://twitter.com/adpucci/status/51590364531924992 Pucci Dellanno

RT @ken4london: K: My article for @leftfootfwd after #bbcqt debate with Niall Ferguson on govt deficit and cuts http://bit.ly/hyVE1T #26 …
http://twitter.com/sabbydhalu/status/51594592671383552 Sabby Dhalu

After Question Time Ken responds to Niall Ferguson + Toby Young on defecit http://bit.ly/hnpxFt @leftfootfwd #BBCqt
http://twitter.com/joshisachdeo/status/51595047543640065 Joshi Sachdeo

RT @SabbyDhalu: After Question Time Ken responds to Niall Ferguson + Toby Young on defecit http://bit.ly/hnpxFt @leftfootfwd #BBCqt
http://twitter.com/clearmoldeight/status/51607151055085568 clearMoldEight

An economics lesson for the growth deniers | Left Foot Forward http://bit.ly/idkKh8
http://twitter.com/gotitbest8/status/51607400477753345 gotitbest8

An economics lesson for the growth deniers | Left Foot Forward http://bit.ly/idkKh8
http://twitter.com/overfreetop/status/51612183183896576 overfreetop

An economics lesson for the growth deniers | Left Foot Forward http://bit.ly/idkKh8
http://twitter.com/palclearsnazz/status/51616454583394304 palclearsnazz

An economics lesson for the growth deniers | Left Foot Forward http://bit.ly/idkKh8
http://twitter.com/fillfatelive/status/51622221663305729 FillFateLive

An economics lesson for the growth deniers | Left Foot Forward http://bit.ly/idkKh8
http://twitter.com/saltern/status/51622874951319552 Saltern

Tory/Lib Tory lies http://www.leftfootforward.org/2011/03/an-economics-lesson-for-the-growth-deniers/
http://twitter.com/shiftleafmeek/status/51637080408862720 shiftleafMeek

An economics lesson for the growth deniers | Left Foot Forward http://bit.ly/idkKh8
http://thoughtsofawannabelibrarian.wordpress.com/2011/03/26/why-niall-ferguson-ken-livingstone-and-toby-young-got-it-wrong-on-national-debt/ Why Niall Ferguson, Ken Livingstone and Toby Young got it wrong on national debt | thoughts of a [wannabe] librarian…

[...] Oh and in case you think Young wasn’t talking about national debt (he only uses the term ‘debt’ in his blog post), here’s his comment on Livingstone’s blog post on the issue of debt: [...]
http://twitter.com/wdjstraw/status/51714799343644672 Will Straw

Great to have Brendan Barber and @Ken4London writing for @leftfootfwd today on #March26 http://bit.ly/gzvrNP & http://bit.ly/ftoaS1
http://twitter.com/samtarry/status/51715798271664128 Samuel Tarry

RT @wdjstraw: Great to have Brendan Barber& @Ken4London writing for @leftfootfwd today #March26 http://bit.ly/gzvrNP & http://bit.ly/ftoaS1
http://twitter.com/cuttingcost/status/51733800425750528 Eric Chase

An economics lesson for the growth deniers | Left Foot Forward: This Thursday on Question Time there was what Mr… http://bit.ly/i10kWX
william

Ken.1.Over the course of this parliament,public expenditure in 2014/5 will be 3 percent less than 2008/9 in real terms.2.Consequently,government borrowing rises each year.3.The economic cycle was not abolished, nor the law of compound interest.4.The damage was done by increasing government expenditure from 36 to 48 percent of GDP from 1997.5.In 2014/5 debt interest payments will be double the defence budget.6.To avoid a collapse of sterling and inflation of 29 percent(cf. 1974),there will have to be a programme of real cuts, not 3 percent,in 2012.7.Much of the public sector creates no wealth.8. Go and have a chat with Gordon Brown, and ask him whether history will applaud him for increasing public expenditure by 50 percent, compared to the growth of GDP of 17 percent.9.Why cannot I vote for a Labour party that understands basic economic priniples?
George McLean

Is this the same Toby Young who, trying to ingratiaite himself with a Merseyside audience on Any Questions? last week, praised the return of Bill Shankley as Liverpool FC’s manager instead of Kenny Dalgleish? Y’know, I think it might be … He’s worth listening to, then …
George McLean

Yeah, I know …”ingratiate”. Curse you,cucumber fingers! But it still means Toby is a bosses’ glove-puppet (or should that be capitalist paper tiger?).
http://twitter.com/stepearce/status/51813277684084737 Stuart Pearce

RT @leftfootfwd: An economics lesson for the growth deniers http://bit.ly/hrV8Yc
Rich

So the debt was higher before the recession started than when Labour came into office, despite years of growth? Sounds like you’re denying rather a lot, even on your own figures.
ahmed

Guido,

you are wrong. All tne wealth created in society is by labour. Don’t take my word for it; see Adam Smith, Wealth of Nations, Chapter 1, opening sentence.

Toby,

GDP is spelt with a P, but we trust your economics expertise. Honest. If you have a million pounds in the bank but a mortgage of a hundred thousand you are not a debtor- logically debts are counted on a net basis. You are using debt under the misconceived Maastricht Treaty criteria, which ignores assets. Which is strange for a staunch Eurosceptic.

How to lose an argument and influence no-one.
http://twitter.com/menburke/status/51820496404226048 michael burke

RT @leftfootfwd: An economics lesson for the growth deniers http://bit.ly/hrV8Yc Ken returns fire to the Right, who can't spell GDP
http://twitter.com/shivrcoolshivr/status/51861793655623680 shivrcoolshivr

An economics lesson for the growth deniers | Left Foot Forward http://bit.ly/idkKh8
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An economics lesson for the growth deniers — leftFootForward.org http://t.co/MTg8maY via @ziteapp
http://twitter.com/pgoumas/status/51928910170034176 Pantelis

RT @constantnos: An economics lesson for the growth deniers — leftFootForward.org http://t.co/MTg8maY via @ziteapp
http://twitter.com/overbeepshake/status/51939599907438592 Overbeepshake

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http://twitter.com/greenleftie/status/52002608390471681 Michael Bater

RT @leftfootfwd: An economics lesson for the growth deniers http://bit.ly/hrV8Yc
http://twitter.com/shopstaywater/status/52004501913219072 ShopStayWater

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http://socialisteconomicbulletin.blogspot.com/ michael burke

Toby,

both Ken and Ferguson refered to national debt. Ferguson didnt refer to ‘general government debt under the Maastricht Treaty criteria’ which is what your chart shows. Apart from the mouthful- there is a good reason for it. This measureis used only by the policy wonks of the EU, because it foolishly excludes assets.

If you go to p.1 of each month’s ONS press release on public finances they talk of ‘national debt’ and use exactly the net measure than Ken references, as here

http://www.statistics.gov.uk/pdfdir/psf0311.pdf
13eastie

So, Ken, why DID the debt start to grow in 2002?

Anticipating the banking crisis by six years?

When asset prices, and tax revenues were booming?

During an un-pree-cee-dented period of continuous growth?

And not even bothering to count the off-balance-sheet borrowing?

Was it Mrs Thatcher’s fault, Ken?
http://twitter.com/littlesteph87/status/52373792592379904 Steph Brocken

http://www.leftfootforward.org/2011/03/an-economics-lesson-for-the-growth-deniers/
http://twitter.com/littlesteph87/status/52373792592379904 Steph Brocken

http://www.leftfootforward.org/2011/03/an-economics-lesson-for-the-growth-deniers/
Richard

“1.Some of us actually contribute to economic growth by creating wealth generating enterprises”

Whose headquarters you register in tax havens.
Richard

Ian, you’re right to fear for the pupils at Toby Young’s school. He couldn’t even get the Latin of his school motto correct.
mathew

13eastie

It rose because after 4 years of non deficit spending Labour ran at a modest 2 – 3% deficit. This was dropping pre Global Financial Crisis and would of been balance around 2011 – 2012. The Tories supported this spending plan and the Liberals wanted more spending. The Spending was to improve the public services so run down by the last Tory Government.

Toby

Like everyone else I feel for the kids who will end up at your school.
mathew

Also Toby,

I hope you do a better job of reading your school children’s work than you did of kens article.
Josh

An economics lesson for the deficit deniers on Left Foot Forward. If any of you pseudo-intellectuals had read your Keynes, you’d know that Keynes would be apopleptic at 10-14% deficits, especially with structural deficits running at 7-9%. When you guys propose fiscal stimulus and discretionary government expenditure and then use Keynes as intellectual justification for the theory, you (Ken especially) conveniently forget 50% of Keynesian theory. In the boom times, Keynes said that public spending should be cut and kept low, and taxes should be high, and that a budget surplus should be developed. Taxes were certainly high under Brown, but so was public spending, and we had a large deficit BEFORE the crisis hit. So you can’t enact Keynesian policies because you ignored 50% of his wisdom. I know Will Straw desperately wants to be thought of as a liberal socialist intellectual, but if he makes basic, elementary errors on simple economics, then he will forever be known as Will ‘Clutching at’ Straws.*

*I apologise for the worst pun joke in the world. I really am sorry