The myth of budget deficit

The budget deficit has become the new swine flu for the political classes. Parties are mobilising around the deficit and, in the case of the Tories and New Labour, almost defining themselves by their ideas for the deficit.

It is, of course, a hyped-up lot of nonsense,  used by different interest groups to pursue their own ends. For many on the right, the deficit is a ‘massive spending binge’ that ushered in financial ruin. Accordingly, they demand money be withdrawn from front-line services and governments privatise public resources. The picture below is revealing, taken from Rich’s excellent Guardian datablog link (April 2009).

The UK deficit is well below France and Germany, who, especially the latter, have fared okay through the crisis.

So when Mandelson chops up up public services (like universities) in the name of tackling the ‘deficit problem’, you know he’s not being entirely truthful.

As an interesting aside, UK personal debt is up to £1.5 trillion (100% of UK GDP). Given stagnant real wages for most of the population and ballooning house prices, this is hardly surprising is it? Yet I haven’t heard many parties asking for higher wages and public housing.

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