Does Debt Matter – A PR Gift To The Labour Party

A fascinating hearing began today in the House of Lords, asking this big question:

Does debt matter?

Giving evidence are:

• Charles Goodhart, Emeritus Professor of Banking and Finance at LSE
• Sir Dieter Helm, Professor of Economic Policy at Oxford University
• Olivier Blanchard, Senior Fellow at the Peterson Institute for International Economics.

Those are three of the brainiest people in the UK with a collective IQ of about 8000.

They are being asked if national debt is a problem for the UK and other G7 countries.

You can read the media notice here.

The reason this is interesting is that the question is structured as if the answer can be: No. It doesn’t matter.

That is a complete revolution in how the national debt is discussed and a gift to the Labour Party if it had the sense to open it.

The narrative on our £2.5 trillion worth of debt – “money” we owe ourselves – is usually restricted to two views: 1) It’s bad, but manageable. 2) It’s an evil bill we are passing on to our grandchildren of which we should be ashamed.

Here is a clever explanation from an expert: “The easiest way to think about it is the relationship between interest rates and nominal GDP growth. If the govt is running a primary budget balance (i.e. after excluding debt interest payments, tax revenues equal spending) then the debt to GDP ratio will rise exponentially if the annual interest rate is greater than the annual rate of nominal GDP growth. That’s just the maths of a ratio. And we appear to be entering an era when that might be the case for the UK.”

Here’s a simpler explanation from a different expert: “Debt doesn’t matter if it’s well spent. It does matter if it’s spent in a stupid way.”

The Labour Party is so terrified of upsetting City, or rather Tory, orthodoxy on this issue that it runs scared from anything that sounds profligate.

Hence u-turns on green investment pledges and the like.

Today’s House of Lords hearing offers Labour the chance to change that narrative.

To describe the national debt as an attempt to improve our grandchildren’s inheritance rather than burden them with taxes.

To see public debt as an asset, not a liability.

In baseball terms, it’s a soft ball they could hit out of the park.

Expect Labour to watch dimly as the ball drifts right past.