At the end of the Second World War in 1945, Britain faced a mountain of debt so large that it was to all intents and purposes, bankrupt. There was massive damage to the merchant marine fleet, some industrial plant was damaged by bombing ( though not as much as Germany or Japan) and much of the remaining industrial stock had been so run down by wartime overuse that it was effectively scrap.
A Government based on principles of good housekeeping would have tried to concentrate all resources on paying the debt, in the hope that a strong pound would underpin the economy, and please financial markets. Like a certain Mr Osborne in 2010, in fact.
Instead the Labour Government of Attlee embarked on a course of massive borrowing , demand stimulus and economic growth, which to be fair was kept up by the Conservative governments that followed. The overall effect was the longest period of sustained growth and rising prosperity in British History. The size of the debt mountain fell relative to that of the economy, and paying it became unnoticed in a wave of new cars, televisions, foreign holidays and new homes.
The economic history of the post 2010 years has been somewhat different.
In today’s Guardian, Larry Elliott describes how the present Government has, tentatively embarked, tentatively, on such a course. We post the link below.
Britain may be taken as a reasonably representative of many advanced countries trying to cope with this unexpected, and very grave, emergency. Which leads us to one worrying thought. The years after 1945 were marked by unprecedented and successful international co-operation. It was after all the era of Bretton Woods, The IMF, the World Bank and growing co-ordination among the advanced economies of Europe. Now most of those trends are going the other way, at varying speeds. Is it time then for a new international economic body to pool the activities of as many nations as possible?
More worryingly, what is the alternative?
#larryelliott #borrowing #rishisunak #britain
2 thoughts on “Grow the economy, then pay the debt”
Bravo Keir, let’s spend our way out of this mess! We could borrow the money from China er! sorry the Middle East! They won’t miss the odd trillion over 50 years!
martin. firstly, thank you for reading my blog. I think Elliott covers the problem more cogently than myself.
I agree that getting people to buy bonds will be an issue, but ultimately that will depend on the price,as does anything
Elliott and other like him say, correctly,that this has been government policy since at least the 1710s. The aim is that as the economy grows, the real value of the debt falls
the problem comes in that it can be inflationary, and that one day, the books must balance.
However, the alternative,instantly balancing the books in the style of Osborne, only leads to recession