Finally! Exposed! The Deficit Myth! So, David Cameron: When Are You Going to Apologize?
By Ramesh Patel
A lie is half-way around the world before the truth has got its boots on
As a Conservative I have no pleasure in exposing David Cameron’s deficit claims. However, as long as the party continues to talk down the economy via the blame game, confidence will not be given an opportunity to return. For it is an undeniable and inescapable economic fact: without confidence and certainty there can be no real growth.
Below are the three deficit claims – the mess. The evidence comes from the IMF, OECD, OBR, HM Treasury, ONS and even George Osborne. The claims put into context are:
The last government left the biggest debt in the developed world.
After continuously stating the UK had the biggest debt in the world George Osborne admits to the Treasury Select Committee that he did not know the UK had the lowest debt in the G7 (Confirmed by the OECD). Those who use cash terms (instead of percentages) do so to scare, mislead and give half the story.
It’s common sense: in cash terms a millionaire’s debt would be greater than most people’s. Therefore, the UK would have a higher debt and deficit than most countries because we are the fifth largest economy. Hence, it’s laughable to compare the UK’s debt and deficit with Tuvalu’s, which only has a GDP/Income of £24 million, whilst the UK’s income is £1.7 trillion.
Finally, Labour in 1997 inherited a debt of 42% of GDP. By the start of the global banking crisis, 2008, the debt had fallen to 35% – a near 22% reduction (page 6, ONS). Surprisingly, a debt of 42% was not seen as a major problem and yet at 35% the sky was falling down!
Labour created the biggest deficit in the developed world by overspending.
Firstly, the much bandied about 2010 deficit of over 11% is false. This is the PSNB (total borrowings) and not the actual budget deficit which was 7.7% – OBR Economic and Fiscal Outlook, March 2012, page 19, table 1.2.
Secondly, in 1997 Labour inherited a deficit of 3.9% of GDP (not a balanced budget) and by 2008 it had fallen to 2.1% – a reduction of nearly 50% – impressive! Hence, it’s implausible and ludicrous to claim there was overspending. The deficit was then exacerbated by the global banking crisis after 2008. See HM Treasury. Note the 1994 deficit of nearly 8%.
Thirdly, the IMF have also concluded the same. They reveal the UK experienced an increase in the deficit as the result of a large loss in output/GDP caused by the global banking crisis and not even as a result of the bank bailouts, fiscal stimulus and bringing forward of capital spending. It’s basic economics: when output falls the deficit increases.
Finally, the large loss in output occurred because the UK, like the US, has the biggest financial centres and as this was a global banking crisis we suffered the most. Hence, the UK had the 2nd highest deficit in the G7 (not the world) after the US and not as a result of overspending prior to and after 2008 – as the IMF concur.
Our borrowing costs are low because the markets have confidence in George Osborne’s austerity plan and without it the UK will end up like Greece.
Yes, the markets have confidence in our austerity plan and that’s why PIMCO the world’s largest bond holder have been warning against buying UK debt.
The real reason why our borrowing costs have fallen and remained low since 2008 is because savings have increased. As a result, the demand and price for bonds have increased and as there is an inverse relationship between the price of bonds and their yield (interest rate) the rates have fallen. Also, the markets expect the economy to remain stagnant. Which means the price for bonds will remain high and hence, our borrowing costs will also remain low.
Secondly, the UK is considered a safe haven because investors are reassured the Bank of England will buy up bonds in the event of any sell-off – which increases the price of bonds and reduces the effective rate. Note how rates fell across the EU recently when the ECB announced its bond buying program. Thirdly, because we are not in the Euro we can devalue our currency to increase exports. Moreover, UK bonds are attractive because we haven’t defaulted on our debt for over 300 years.
David Cameron would like people to believe the markets lend in the same way as retail banks lend to you and me.
Overall, when the facts and figures are put into context these juvenile deficit narratives and sound bites (‘mere words and no evidence’) simply fail to stand up to the actual facts. The deficit myth is the grossest lie ever forced upon the people and it has been sold by exploiting people’s economic illiteracy.
So, David Cameron when are you going to apologize?
Cameron is playing the blame game to depress confidence and growth to justify austerity. And secondly, to use austerity as the justification for a smaller state – to gain lower taxes. Thirdly, to paint Labour as a party that cannot be trusted with the country’s finances again. Therefore, we Conservatives will win a second term because people vote out of fear. The latter strategy worked the last time in office (18 years) and will work again because, in the end, elections are won and lost on economic credibility. Hence, as people believe Labour created the mess they won’t be trusted again.
As the truth is the greatest enemy of a lie, I urge you to share this on Facebook, Twitter, blogs, text and email, etc. So the truth can be discovered by all.
Finally, have no doubt, people have been misled by the use of the following strategy:
…in the big lie there is always a certain force of credibility; because the broad masses of a nation are always more easily corrupted in the deeper strata of their emotional nature than consciously or voluntarily; and thus in the primitive simplicity of their minds they more readily fall victims to the big lie than the small lie, since they themselves often tell small lies in little matters but would be ashamed to resort to large-scale falsehoods. It would never come into their heads to fabricate colossal untruths, and they would not believe that others could have the impudence to distort the truth so infamously.
Adolf Hitler, Mein Kampf, vol I, ch X
In the beginning of a change, the patriot is a scarce man and brave and hated and scorned. When his cause succeeds, the timid join him, for then it costs nothing to be a patriot.
Mark Twain, Mark Twain’s Notebook, 1935