Public debt is bad. We all know it. So we can surely breathe a collective sigh of relief at the news that the UK’s borrowing figures for September 2017 are the lowest for a decade. This is according to the latest numbers published by the Office for National Statistics. Finally, after seven years of spending cuts, wage caps and privatisation, the Conservatives are finally starting to get a handle on all that dangerous public debt.

Let’s ignore the fact that they originally planned to eliminate the deficit entirely by 2015. And let’s ignore the fact that George Osborne quietly dropped his target of achieving a budget surplus by 2020 after the Brexit vote. And let’s definitely forget that the Office for Budget Responsibility has drastically reduced its growth forecasts for the next five years, rendering any reduction in borrowing completely irrelevant.

What’s surely important is that borrowing is coming down. It’s been a long, hard seven years of austerity but it will all be worth it in the end. Because high levels of public debt are bad for the economy, which means getting the debt down is sensible, prudent and necessary.

Except that isn’t quite true.

The publicly entrenched perception of national debt being an essentially bad thing stems from two parallel and flawed beliefs.

The first more forgivable belief is that high levels of public debt impede economic growth. This belief stems from a dangerous cocktail of hasty empirical conclusions and economic zealotry. The fact is that, at worst, the jury is still out on this issue. There is little evidence to show that public debt has any serious impact on growth, and even compelling evidence to suggest that healthy growth can occur at high debt levels. Even just a casual glance at the history of the UK tells us that high public debt doesn’t always stymie growth. The average growth rate across the 1950s was a healthy 3.1% of GDP, despite a colossal post-war public debt averaging 145% of GDP. Whereas much lower public debt in the 1970s preceded an economic crash. This is not to claim any sort of inverse causal relationship but merely to point out that the exact nature of the relationship between public debt and growth is far from established.

The second belief, and far less forgivable, is the fallacy that it was high levels of public debt that actually caused the economic crash of 2007. The dissemination of this myth has caused the Labour party to be cast as careless spendthrifts who ‘got out the credit card’ in order to fund frivolous public services and, in doing so, plunged the country into economic meltdown.

The truth of the matter is that public debt under Labour immediately before the financial crash of 2007 was around 40% of GDP. This yet again serves to illustrate that a low public debt is no guarantee of a strong economy.

This is not to say we shouldn’t be entirely unconcerned with rising debt, however. There is one kind of debt that we should be very concerned with because, when it gets high, it’s usually bad news for the economy. This is private debt.

Earlier this year it was reported that, for the first time, levels of unsecured private debt had hit pre-crash levels. And this should worry us because it was precisely unsecured private debt that caused the economic crash of 2008. In fact, it is such worrying news that Andrew Bailey, head of the Financial Conduct Authority, has spoken of the need to take measures to tackle the issue. What’s more, credit rating agencies, Moody’s and Standard & Poor’s, have both issued a statement warning about the potential dangers of such high levels of private debt, and the Bank of England’s Financial Policy Committee has acknowledged the dangers of growing consumer credit in its September 2017 meeting statement.

So where are the cries of indignity? Where are the heated exhortations to ‘get the private debt down’? Where is the insistence that we must live within our means?

If we are so convinced as a society that public debt, which doesn’t cause economic meltdowns, is bad, then why are we so relaxed about private debt, which does cause economic meltdowns?

It all boils down to one simple thing. It benefits the political and business elites of the UK for the public to have this skewed view of debt. This works in two distinct, yet interdependent ways.

Firstly, If the public have a negative view of public debt, however unjustified, this gives government a pretext to both cut public services, creating more opportunities for private business, and to privatise. At the same time, if the public has a relaxed attitude to private debt, however dangerous that might be, it means that people have something to spend, even in a time of savage wage repression which should rob many consumers of their spending power.

There is in fact a direct causal link between public and private debt. As public spending comes down, as it has done drastically over the past 7 years, then private spending must go up to compensate. In an economy with such a preponderance of low-paying, insecure jobs, this inevitably means people need to borrow more. To give a concrete example, if a person’s wage rise has been capped at 1% for the last seven years, it is entirely likely they will be forced to make up that shortfall by borrowing. This is exactly what’s been happening.

The fact is that the government can borrow much more money, at far cheaper rates of interest, over much longer periods of time, in a much more manageable way than private individuals can. Ironically, the people who are most likely to be forced into borrowing to survive are those who will receive the worst interest rates, and be more likely unable to repay.  This is exactly the phenomenon that debt charity, Step Change, have observed in their mid-year report.

So given this context, the latest public borrowing figures make for pretty grim reading. Essentially we have, as a nation, swapped a load of safe and sustainable public debt for a mountain of dangerous private debt which could, if left unchecked, be the catalyst for the UK’s next economic downturn.

If the Government really wants to ensure the UK economy can grow in a safe and sustainable way, then it needs to tone down its obsession with public-debt, and focus on helping people survive and prosper without having to turn to unstable private borrowing. If the government can’t do this, then no amount of austerity will save the UK economy from another serious crisis.

Connor Devine tweets at @CDivinio. 

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At this year’s Labour Party conference, Jeremy Corbyn stood up in front of a hall packed to the rafters with Labour faithful. Dyed-in-the-wool Corbynistas and new converts alike welcomed him to the stage with attendant whooping, cheering and, of course, chanting. Corbyn delivered a confident closing speech, where he reinforced commitments to a whole host of policies and spending pledges outlined in the Labour Party manifesto back in June.

These commitments included the creation of a National Education Service, which would breathe new life into an education system starved of money and with record numbers of teachers leaving the profession due to diminishing working conditions. They included the abolition of university tuition fees, which see graduates burdened with debts of over £50,000. They included billions more for the National Health Service, which is creaking under the pressure to perform on a shoestring budget and staring down the maw of a long and painful winter. And there was more. Renationalisation of energy, water and rail, an end to the public sector pay-cap, free childcare – the list goes on.

Sounds great, doesn’t it?

But then conventional wisdom rears its head. And it dictates that the policies outlined by the Labour Party amount to nothing short of economic illiteracy. These policies, the collective consensus dictates, while they might sound like nice ideas, simply could not work in the real world. There is no money left. It’s all gone, remember? There’s a deficit! There’s no magic money tree! We don’t live in cloud-cuckoo land! We all know the arguments.

But do we actually know if they’re right?

On 3^rd June 2017, days before the general election, The Guardian published a letter, joint-signed by 129 leading economists, articulating full support for the investment-focused economic policies outlined in the Labour manifesto. The letter claimed that the policies are designed to “strengthen and develop the economy” and ensure developments are “sustainable”. What’s more, the letter boldly claims, the policies are based on “sound estimations” – surely not a phrase to be associated with Labour party economic policy in polite conversation?

Conservative policy would on the other hand, it claimed, “slow the economy at a crucial juncture”.

The authoritative endorsements don’t end there. Nobel-prize winning economist Joseph Stiglitz lent his support to Labour’s focus on investment, claiming “It is remarkable that there are still governments, including here in the UK, that still believe in austerity.”

And it is not just the Conservative government: the (quite frankly oxymoronic) idea that we must be fiscally frugal to secure economic prosperity has taken firm hold of the public consciousness and shows little sign of letting go.

There are many possible, and probably simultaneous reasons why the austerity myth enjoys such unadulterated acceptance amongst the British public. The idea that a country’s economy works like a household budget is a confusion as old as Aristotle, but it holds a frustrating amount of traction among the population and, once that false premise has been established, the idea of spending more to improve the economy does sound counter-intuitive. There’s the deeply-entrenched Calvinistic streak that runs through us as a people, which makes us particularly susceptible to narratives that dictate we must undergo some form of ongoing suffering or penance. And we have historically been socially conditioned, through centuries of egregiously exploitative feudal, or feudalistic, systems of distribution to accept the idea that we need to work very hard for little reward. Because that’s the way it has to be.

And, of course, there is the way the arguments are framed in our national debate. Arguments in favour of austerity are augmented, while those against are hushed – often by the very people who are making them.

Labour’s manifesto was not welcomed with open arms by all economists. Daniel Mahoney and Tim Knox of the notoriously opaque neo-liberal think tank Centre for Policy Studies issued a critique of the plans outlined in the manifesto after its release, specifically criticising points around tax reform.

The piece enjoyed widespread exposure across a number of publications, all with suitably hysterical headlines: Labour manifesto would ‘bankrupt Britain’ with £250bn debt and biggest tax burden since 1950s (The Telegraph), Corbyn’s plan to bankrupt the UK with a £30billion black hole and 1.3m middle class forced into super rich tax band (Daily Mail), Jeremy Corbyn’s spending spree ‘would create £58bn black hole paid for by British families’ (Daily Express).

However, a rousing endorsement of the Labour manifesto from economist John Weeks through the Policy Research In Macroeconomics organisation enjoyed precisely no coverage in the mainstream press.

When you see the one-sided level of exposure to these competing ideas, it is not hard to understand exactly why the public are so ready to accept the idea that Labour’s perfectly reasonable investment plans are “economically illiterate”, while remaining convinced that Conservative intentions to prolong austerity represent sound economic policy.

Labour’s plans are made even more unpalatable due to the public’s strong aversion to the ‘B’ word – borrowing. Any increase in public borrowing to fund these spending plans, our friend conventional wisdom dictates, would amount to economic suicide. This argument, curiously, doesn’t count when it comes to quantitative easing. In a Herculean feat of double-think, the public seems ready to accept that half a trillion pounds pumped into financial markets is necessary and prudent. The same amount set aside for a National Investment Bank, however, is economic madness

But what about future generations? Surely more borrowing would saddle them with huge and unjust levels of debt? Here, yet again, conventional wisdom fails to take the big picture into account. Even if this argument were true, future generations would undoubtedly benefit from improved healthcare, education and infrastructure far more than they would suffer from an increased debt-burden. What’s more, as Stiglitz points out, public borrowing doesn’t necessarily have to increase debt as, “if the value of your investments […] increases, then the economy is in a stronger position for the future.”

The truth is, it is austerity that represents “cloud-cuckoo land” economic thinking and the results speak for themselves. Conservative economic policy over the last seven years has resulted in Britain having the largest real-time wage decline in the OECD (with the exception of Greece), the slowest growing economy in the G7, and the Office for Budgetary Responsibility drastically cutting productivity forecasts. This is compounded by a string of failed (self-imposed) borrowing targets.

For too long, the dictated narrative has been that more public spending, while a nice idea, is not economically pragmatic. This is simply untrue. A drastically increased level of public investment is not just morally preferable, it is economically prudent. The received wisdom that we cannot afford to invest in our future must be challenged. The truth is, we can’t afford not to.

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