Originally Posted by makeba72:
“Thanks for that article.
Could anyone explain to me about the whole 'deficit being cut' thing? That article claims it's been cut in half, Osborne claims a big success in reducing debt and borrowing, but then there are other claims that in fact, debt and borrowing has risen under the Coalition if you look more closely at the real figures.
Who's right?”
It's truly confusing, isn't it?
According to
this from the BBC, that understanding what the economic terms actually mean is key and then to go on to understand what each term does in context also important.
But from what I understand from that article, there seems to be a misappropriation of the way the government, the opposition and other commentors use the terms in public discourse. For instance, when politicans and other commentors are talking about "the deficit", in what context are they using and talking about the term? Are they referring to 'the current budget deficit' or 'the structural/underlying deficit' or 'Total UK debt' or 'Net Govt Borrowing' when it seems that each term refer to very different things? For example among other points of confusion, when refering to 'net borrowing', is the govt 'borrowing' to invest to stimulate the economy into growth or is it borrowing to make a short-fall/deficit in public finances (which merely "debt" in any other parlance)?
From what I can deduce from all that the article is saying is this: *When the Coalition govt are talking about "the deficit" falling, they are actually refering to the structural/underlying deficit and not necessarily the current budget deficit and/or indeed net government borrowing, both of which are still on the rise (as of March 2015). In other words, the Coalition/Conservatives are claiming that under their economic stewardship their policies in tackling the current budget deficit and govt borrowing are resulting in an overall down-ward
trend thus giving us an overall picture of debt reduction - i.e. the
rate at which our total national debt grows is actually falling. So Obsorne is right in claiming that the
rate in net borrowing (and thus the rate of growth of our total national debt) is falling. But, of course, that is only half the picture as Labour and other commentors argue: Our total national debt is still rising because we are still operating budget deficits. and net borrowing continues to increase. The real key is to reducing our total debt is to get net borrowing down year-on-year by balancing the budget and working towards budget surpluses over the coming years and decades - which is something the govt is simply failing to achieve year-on-year.
I guess if the electorate understands more acurately the way politicans use the term 'deficit', they will be better placed to address the question the Conservatives are asking them: "Which party and their policies do you think will make a better fist at tackling the
underlying structure and trend of the UK economy towards long-term debt reduction?" The Conservatives would argue that they have the figure to prove that. However, Labour are also better placed to ask the electorate: "Which party and their policies do you think will make a better fist at tackling the
underlying structure and trend of the UK economy towards long-term debt reduction
without indebting the nation year-on-year and triggering a fall in our living standards and making our social and economic lives unbearable?" They too will have (and do) have the figures to prove the hypothesis behind the question.
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*According to the BBC article:
You will hear some politicians, particularly from the Conservative Party, talk not just of deficits, but of structural deficits.. As the article says: "the structural deficit is basically 'the current budget deficit, adjusted to strip out the cyclical nature of the economy'. You would expect, for example, the budget deficit to narrow when the economy grows after a sluggish period. The structural deficit attempts to exclude the effect of this recovery. In other words, the structural deficit is "the bit of the deficit that remains even when the economy is operating at full tilt". Or put another way, it's the
underlying deficit that is not directly affected by economic performance" (my italics).
And then there is the meaning of the term of another "deficit" that politicans and economists talk about, which is 'the current budget deficit'. Again referring to the article, this particular deficit is "the difference between the government's everyday expenses and its revenues; in other words, between what it spends and what it receives. In recent years, it has spent a lot more than it receives, so we are used to hearing about a budget deficit ... And there is
a direct link between the current budget and
debt. If the government runs a [budget] deficit, it is effectively overspending and, therefore, in most cases
adding to the overall pile of debt. By running a surplus, the government can chip away at this pile" (my italics).
And yet again, while the meaning of this particular "deficit" - i.e. the
current budget deficit is clear (as is the meaning of the other "deficit" - i.e.
structural/underlying deficit - is clear), there is still remains a misappropriation of the way the word "deficit" is used in public discourse. While it seems, according to the article, that the Coalition (particularly the Tories) are referring to the
structural/underlying deficit when addressing the issue of the "deficit" in public interviews etc, other politicians are referring to and talking about something entirely different: Ed Balls "as a former Treasury man ... {is] talk[ing] about the
current budget [deficit]" while others are "actually referring to
government borrowing".