End a national debt crisis? Increase government spending

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This is the conclusion of a recent study in the UK

This recent study examined eight episodes in the 20th century United Kingdom when government spending was significantly increased or decreased. With the exception of the world wars, in each case increases in government spending were met with a reduction of the debt to GDP ratio, and decreases in government spending were met with an increase of the debt to GDP ratio.

"For example, after World War I (1918-23, including the years of the so-called Geddes Axe) public expenditure was cut to 480 million pounds from 1.85 billion, but the public debt rose to 180 percent of GDP from 114 percent.

During the early years of the Great Depression (1931-1933), expenditure fell to 510 million pounds from 580 million and government debt increased to 183 percent of GDP from 173 percent. Conversely, from 1934, the government began to expand expenditure and the public debt fell.

From 1947 to 1975, when government spent freely on the National Health Service, public housing and education, the public debt fell each year. The first increase in debt coincides with the 1976 fiscal consolidation."

The study concludes that "Very roughly, so long as there is unemployment, for every percentage rise in government expenditure, the public debt falls by half a percent, and vice-versa. This is very compelling evidence in favor of Keynes’s insights."

How good is the debt / GDP ratio as a measure of the depth of the debt crisis.?

Goodness gracious! I thought this forum was all about Bible studies.

Debt to GDP ratio is the measurement of debt manageability. It measures the debt against the ability to pay...

The study is here. Britain's debt to GDP ratio as it has developed over the past century can be seen on a table listed there. The 2009 debt to GDP ratio is similar to that of 1971 when Edward Heath was prime minister. That's when he started his "dash towards growth". This is a slightly different reaction to that of David Cameron, is it?

In 1909, it was 33%
In 1919, it was 136%
In 1929, it was 162%
In 1939, it was 141%
In 1949, it was 201%
In 1959, it was 116%
In 1969, it was 74%
In 1979, it was 46%
In 1989, it was 39%
In 1999, it was 47%
In 2009, it was 61%

By the way, it was 44% in 2007 just before the crisis struck. Funnelling all that money to banks is not very efficient. Those Conservative partisans should know also that the figure was 53% when Blair took over from Major, so this talk of structural deficit hell caused by Labour is not supported by the numbers.

You can't produce true prosperity by spending on debt.

At best, you create an illusion of prosperity, and only a few really benefit from it.

Look at that list there. In 1949, debt to GDP ratio was 201% which today would cause mass hysteria. Back then, instead of mass hysteria, they started building the welfare state, the National Health Service and so forth. Look at how the debt to GDP ratio plummeted after what would be considered to be fiscal suicide. Look how that extra spending helped to force the debt to GDP ratio down.

The other day there was a thread here about how people become more entrenched in their views when faced with evidence against their views, so I continue to expect negative reactions to the idea expressed here. There's continuing propaganda in favour of austerity which has been promoted for the past 30 years of the neoliberal age and they depend of course on disembodying current events from the past, on ignoring what was going on back in the past when according to them, they should have folded their countries up and given them lock stock and barrel to the banks.

The more important figure is external debt to GDP. If Government owes $100bn to its own citizens, then that is still an asset of the economy that the Government is managing. On the other hand, if the PRC is holding $100bn in Treasury Notes, then that is debt that is owed outside the economy.

If we look at the current financial crisis in the UK, then it is important to keep the amount of money flowing to the banks in perspective. At the time of the collapse, credit default swaps were running at about ₤63 trillion. The financial bailout for british banks is in the range of ₤500 billion, or less than 1% of the value of the assets that were the subject of the collapse.

The substantial value of the asset-backed debt is largely intact, and the crisis is primarily an issue of liquidity. This is an issue which is easier for government to remedy, particularly in a circumstance in which there are substantial assets accruing to the public sector through nationalization, and eventual reprivatization.

So China can buy the U.S. investments in China with American money. They should do this. This will tilt the trade balance back...

There was no "Yes, if...." answer, so I had to vote just plain yes.

Note that it's war spending that causes that debt to GDP ratio to go up, and it's post war spending that makes it go down.

When you build bombs, that you explode over other countries.... there is no return on investment.

When you build infrastructure, that lasts and serves a real purpose.... there is great return on investment.

So, my "Yes, if...." is to require that the spending be on investment. If you build infrastructure that has potential for future returns spending WILL solve the debt crisis.

There is really just 1 problem here... Is there sufficient infrastructure that can be built to take up enough spending to solve the problem?

The internet does seem to be one option. But are there others? What more infrastructure does the US need? For that matter what more do most 1st world nations need? Yes, certain borderline 1st word nations do have the potential, but not many. However war will not provide an alternative, it is dead-end spending. Direct social spending will not really help either.

The only real suggestion I can make is an infrastructure for social works. Roads, rails, planes and ships help move goods, but not services. The goods industry cannot expand sufficiently to require more infrastructure. The service industry which is far less consuming, but still holds the potential for the necessary financial transactions can. But again, I doubt this infrastructure could be anything other than the internet.

But then.... that raises a "conspiracy theory" issue. The "Internet 2" idea.
http://theconspiracyzone.blogspot.com/2 ... it-at.html