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Tuition Fee Riots - NUS implicated?

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Re: Tuition Fee Riots - NUS implicated?

Postby jollytiddlywink on Mon Nov 15, 2010 7:23 pm

If I may inject a little historical information to put the current debt into context.
The debt is, absolutely, the largest that the British government has ever run up. But it is not the largest debt as a proportion of GDP. It isn't even close.

Macgamer has provided the figure of the debt in March 2010 being 71.3% of GDP, and seems to gave gotten his knickers in a twist about how awfully high this is, and how bad Gordon Brown is for letting it happen. I have left out the pension liabilities, etc, that he mentioned, because, while he doesn't link to his source, I think they are likely to be cumulative total liabilities artificially totaled and made present-day for the purpose of calculation. In any case, we're ignoring them.

In 1923, the costs of depression and the First World War caused the debt to rise to 181% of GDP. It remained above 150% of GDP until 1938, fell to 110% by 1940, and then rose to 238% of GDP by 1947 (almost exactly the 237% of GDP reached in 1816). Clearly, the British government has managed to sustain far higher levels of debt than it is currently sustaining, and has done so in peacetime as well as during wars. Macgamer complained that the labour government did not do enough to reduce the national debt during the 'good times' of the late 90's and most of the 2000's. To this I would point out that, in 1914, after a century of parsimonious government efforts to cut spending to the utter minimum, national debt stood at 25% of GDP, at the end of forty years or so of some of the most rapid economic expansion in world history. Would macgamer like to tar the notoriously tight-fisted Chancellors of the late Victorian and Edwardian era with the same brush that he so gleefully wields on Gordon Brown?

Lastly, macgamer, DACrowe asked if you had any actual information to back your assumptions about the Laffer-curve. You don't, apparently, but insisted (and expanded) upon your point anyway. It would be only polite (and rational) to concede the point, if you don't indeed have any factual basis for your claim.
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Re: Tuition Fee Riots - NUS implicated?

Postby macgamer on Mon Nov 15, 2010 10:30 pm

jollytiddlywink wrote:Macgamer has provided the figure of the debt in March 2010 being 71.3% of GDP, and seems to gave gotten his knickers in a twist about how awfully high this is, and how bad Gordon Brown is for letting it happen. I have left out the pension liabilities, etc, that he mentioned, because, while he doesn't link to his source, I think they are likely to be cumulative total liabilities artificially totaled and made present-day for the purpose of calculation. In any case, we're ignoring them.

Source: http://www.telegraph.co.uk/finance/econ ... llion.html

In 1923, the costs of depression and the First World War caused the debt to rise to 181% of GDP. It remained above 150% of GDP until 1938, fell to 110% by 1940, and then rose to 238% of GDP by 1947 (almost exactly the 237% of GDP reached in 1816). Clearly, the British government has managed to sustain far higher levels of debt than it is currently sustaining, and has done so in peacetime as well as during wars. Macgamer complained that the labour government did not do enough to reduce the national debt during the 'good times' of the late 90's and most of the 2000's. To this I would point out that, in 1914, after a century of parsimonious government efforts to cut spending to the utter minimum, national debt stood at 25% of GDP, at the end of forty years or so of some of the most rapid economic expansion in world history. Would macgamer like to tar the notoriously tight-fisted Chancellors of the late Victorian and Edwardian era with the same brush that he so gleefully wields on Gordon Brown?

Presumably in the Victorian period we were running a budget surplus, so despite such a large debt we had a huge trade surplus and so could afford the interest. Our creditors were confident that we'd pay it off or meet the interest payments. Indeed the longer we took to pay it back the more money they made, so if it was strung out along decades all the better, provided we kept up interest payments. The current situation is one of trade and budget deficit, so there is surely less confidence in our ability to pay, which is why Osborne and his opposite numbers in other economically foundering nations are so worried about the debt getting 'downgraded'. The resulting significant increases in interest rates, would make balancing spending all the more difficult and cuts yet harsher.

Lastly, macgamer, DACrowe asked if you had any actual information to back your assumptions about the Laffer-curve. You don't, apparently, but insisted (and expanded) upon your point anyway. It would be only polite (and rational) to concede the point, if you don't indeed have any factual basis for your claim.

I gave the example of Hong Kong's transformation from a shanty town in the 1960s to the economic powerhouse it is today by the 15% flat tax instituted by Sir John James Cowperthwaite who was the Financial Secretary of the colony. However below is a link to an article produced by the Adam Smith Institute on Capital Gains Tax in which is contained a number of examples:

http://adamsmith.org/files/CGT-II.pdf
Adam Smith Institute wrote:International evidence suggests clearly that increases in capital gains taxes above a very modest level result in decreases in revenue. Similarly, if capital gains tax rates are set above a relatively modest level, then their reduction will involve an increase in revenues.
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Re: Tuition Fee Riots - NUS implicated?

Postby macgamer on Mon Nov 15, 2010 10:35 pm

Was the wholesale bailout of the banks necessary? - Iceland got away without doing it. It secured the deposits of savers, not those of investors and saved a lot of money:
http://www.spectator.co.uk/essays/all/6 ... boom.thtml

Matthew Lynn wrote:Iceland’s three big banks, Glitnir, Kaupthing and Landsbanki, did end up being taken over by the state, but, while domestic depositors were protected, the government didn’t attempt to meet all international obligations. Kaupthing, for example, is being wound down, and has been renamed Arion Bank. This approach was very different to the British, American and Irish bank rescues, which tried to cover all bank losses by pumping untold billions of taxpayers’ money into financial institutions.
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Re: Tuition Fee Riots - NUS implicated?

Postby macgamer on Mon Nov 15, 2010 11:03 pm

This,I feel, sums it up for students and the British public generally:
Image
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Re: Tuition Fee Riots - NUS implicated?

Postby jollytiddlywink on Tue Nov 16, 2010 12:48 am

jollytiddlywink wrote:Macgamer has provided the figure of the debt in March 2010 being 71.3% of GDP, and seems to gave gotten his knickers in a twist about how awfully high this is, and how bad Gordon Brown is for letting it happen. I have left out the pension liabilities, etc, that he mentioned, because, while he doesn't link to his source, I think they are likely to be cumulative total liabilities artificially totaled and made present-day for the purpose of calculation. In any case, we're ignoring them.



So, now we've got the source. The article is three months old. A close reading of the article indicates that the pension liabilities are just that: liabilities. They are not current debt, and to treat them as such, or to equate them with it, is specious and disingenuous. My point stands; namely, that levels of debt compared to GDP have been higher in the past, twice by more than a factor of three. This puts the current situation into context.

Presumably in the Victorian period we were running a budget surplus, so despite such a large debt we had a huge trade surplus and so could afford the interest. Our creditors were confident that we'd pay it off or meet the interest payments. Indeed the longer we took to pay it back the more money they made, so if it was strung out along decades all the better, provided we kept up interest payments. The current situation is one of trade and budget deficit, so there is surely less confidence in our ability to pay, which is why Osborne and his opposite numbers in other economically foundering nations are so worried about the debt getting 'downgraded'. The resulting significant increases in interest rates, would make balancing spending all the more difficult and cuts yet harsher.


As the proportion of debt to GDP dropped over the nineteenth century (1815-1914) from 237% to 25%, we did indeed run a budget surplus, because from 1821 (or the 1840s for some purists) we were on the gold standard, which fixed the value of the pound and prevented inflation, with the express purpose of not inflating the debt away, and thus maintaining the credit-worthiness of the government. Granted, GDP grew, but the debt shrank because we paid it down.
Having a budget surplus has no bearing on having a trade surplus or not, and having a trade surplus has no bearing on whether a state can afford to service its debt (pay the interest).
As to it being advantageous (for the creditors) for the UK to take longer to pay back the debt, that entirely depends on what the conditions of issue were in the first place. I am not sufficiently well-read on British Napoleonic-era finance to be able to comment, but I would be surprised if the repayment date was left entirely open-ended. Certainly, a lot of more modern debt is issued with a definite end-date.
The current situation is one of deficit, obviously. It is less clear that it is one of trade deficit. Britain is, it seems, running a trade deficit, but a services surplus, much as happened through much of the 1930s. It alarmed the government then, but actually didn't matter at all. In other words, I don't see what relevance this has to your argument.

Reading the news generally over the last six months, and not just that article, reveals that apart from a few scare-mongering articles worrying that the UK might go the way of Greece, with a down-graded credit rating, there is no fear of British default, nor of British ability to continue to service the debt. The general rule of thumb is that countries are considered likely to default if the cost of servicing the debt is higher than 12% of government income. The figures I can find indicate that this year, the UK is spending about 3%, and even the worst predictions of the future suggest it will reach no more than 10%. Even that seems highly unlikely: servicing a far larger burden of debt in the 1920s never cost more than 7% of income, which was the highest figure in the 20th century.
So your blase assertion that "surely there is less confidence in our ability to pay" is unsustainable.


Lastly, macgamer, DACrowe asked if you had any actual information to back your assumptions about the Laffer-curve. You don't, apparently, but insisted (and expanded) upon your point anyway. It would be only polite (and rational) to concede the point, if you don't indeed have any factual basis for your claim.

I gave the example of Hong Kong's transformation from a shanty town in the 1960s to the economic powerhouse it is today by the 15% flat tax instituted by Sir John James Cowperthwaite who was the Financial Secretary of the colony. However below is a link to an article produced by the Adam Smith Institute on Capital Gains Tax in which is contained a number of examples:
http://adamsmith.org/files/CGT-II.pdf
Adam Smith Institute wrote:International evidence suggests clearly that increases in capital gains taxes above a very modest level result in decreases in revenue. Similarly, if capital gains tax rates are set above a relatively modest level, then their reduction will involve an increase in revenues.


This argument is worth entertaining only if you believe that tax levels are the sole determinant of what makes an economy succeed or not. Innumerable examples, past and present, and common sense, make it clear that that is not the case. Indeed, I could provide evidence that the level of tax burden is less relevant than the perceived fairness of that burden, but that would be a rather long, and rather red-herring-esque, digression.
The link to the Adam Smith Institute is irrelevant: we were discussing income tax, and now you're mentioning capital gains tax. Apples and oranges. You've still provided nothing to indicate that the Laffer-curve kicks in between 40% and 50% at the top tax rate, which was the point under discussion.
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Re: Tuition Fee Riots - NUS implicated?

Postby jollytiddlywink on Fri Nov 19, 2010 12:33 pm

macgamer wrote:Presumably in the Victorian period we were running a budget surplus, so despite such a large debt we had a huge trade surplus and so could afford the interest...


A small further note, but an important one: governments do not pay interest on debt from budget surpluses. Paying the interest is part of the budget. Interest payment and budget surplus aren't linked, as you seem to think.
Repaying the debt and running budget surpluses are linked, but that is entirely different from servicing the debt.
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