Economic suicide?

Every now again, you happen across some truly mesmeric graphs.   Here they are, courtesy of the always insightful Neil Wilson over at 3spoken:

Debt levelssectoral balances

Are you mesmerised?  If not, you certainly should be.  Here’s why…

Graph 1 illustrates that the UK, like most neoliberal economies, is presently suffering from a PRIVATE debt crisis.  That’s private debt, not public debt.  Indeed, public debt has remained fairly constant – yes, it’s trickled upward in recent years, but it’s certainly nothing to write home about in macroeconomic terms, and way lower than the historic high of 250% that prevailed at the end of WW2 (at which point the government of the day made the entirely correct decision to SPEND in order to get the economy moving).  So, why the hysteria about our public finances?  Why the shrieks of terror that our deficit (the dreaded fucking deficit!) is about to plunge us into the economic abyss?  Which brings me to Graph 2…

Graph 2 is pictorial confirmation of the important macroeconomic accounting identity long pointed out by Modern Money theorists, namely that the public sector deficit = the private sector surplus, and vice-versa.  Hence, the mirror image.  Put another way, this means that the government, by running a deficit, is supplying the net assets required by the private sector to spend, save, and pay down the record debt depicted in Graph 1.  By contrast, official mainstream policy apparently aims to cut the deficit, which, by corollary,  must reduce the private sector’s ability to pay down its debt.  In other words, the graph confirms that official UK government policy is to commit economic suicide.

Trebles all round, everyone?

Advertisements