This is mainly for a couple of people I know who have posted links to this article
The argument, in brief, is that because of the accounting identity that aggregated debt is zero, (because debt has to be owed to someone),
reducing government debt leads to increasing private sector debt, and that because this, as forecast by the OBR, is projected to reach the level it hit in 2008,
then Britain is headed for another crash.
There’s so much wrong with this argument it’s hard to know where to start, but here are a couple of possibilities
- The crash of 2008 was not just because of high levels of household debt. In my view, systematic problems with the banking sector had rather more to do with it.
- Don’t forget the other part of that aggregation. If the UK government pursues a policy of austerity, and in the widely accepted Keynesian way, this also slows down the rest of the economy, then the impact is likely to be seen in the amount of UK debt with the rest of the world.
The writer, David Graeber, is by training an anthropologist, which since the publication of Gillian Tett’s ‘Fool’s Gold’ can be no disqualification for writing about the world of finance, but it would have helped if he had brought some of his professional perspective to the argument. Instead, he uses economic arguments which are just … embarrassing. As a matter of principle, he should have put in a link to the OBR report from which he took his graph – here it is
where there is plenty of evidence that professional economists are not complete fools.