How frightening is the deficit?

Click on the image to enlarge

The Guardian has a graphic (right) that shows an extremely alarming picture of the deficit over time.

It seems to show rather modest borrowing every year since the late 1970s, but monstrous profligacy in the last year of the Labour government.

But the graph is actually misleading. The deficit figures from earlier years have not been adjusted for inflation.

Here’s what a graph that did adjust for the falling value of money over the past three decades would look like:

The recent deficit is still terrible in historic terms  - but it’s no longer so disastrously divorced from all previous experience.

Yet even factoring in inflation does not give the full picture. Our economy is much larger today than it was in the mid 197os. A better way of measuring the deficit over time is borrowing as a percentage of GDP

And here’s what that shows:

Again, still bad – but even less divorced from historical experience.

Tim Montgomerie, the editor of Conservative Home, called the Guardian’s graphic “frightening” on Twitter today.

My message would be: be afraid, but not that afraid.

(Data source: HM Treasury)

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• http://allectus-allectus.blogspot.com Allectus

  “And when does the paying off of debts … to sustain the profits of the multinational corporations finally collapse?”

  “The debt only has reality in the financial unreality that manufactures paper profit …”

  “… exploitation by fundamentalist forces …”

  “… greater Europe flirts mor and more with fascism …”

  “The ground itself is finite … dictates a political asymptote, a 1933 moment.”

  Looks like you’re having a David Icke moment.

  Slogans, cliches, half-digested jargon and fatuous conspiracy theories are poor substitutes for rational argument.

• andyholmes

  Even with the governments cuts programme, debt will come perillously close to peaking at 80% by 2015 with predicted growth forecasts, and therefore is more than likely to exceed it in light of the deteriorating worldwide economic situation. Labour’s alternative would have seen debt exceed 100% by 2014, and continuing to rise. So when exactly do you start to worry about debt levels then ?

  Of course the critical part of your last statement is “at times”.
  Government borrowing during retracements and recessions are normal practice. The difference this time is that we were borrowing “average deficit levels” at the peak of the growth cycle. You espoused Keynes in another comment, but following Keynesian policy dictates that government intervention is reduced, spending drops and taxes increased during growth, with funds put aside to borrow heavily during the downturn. Running budget deficits during the strong growth years from 2002 to 2007 are why we are in this situation now. Also government net borrowing doesn’t include government liabilities like future public sector pensions and PFI commitments Once those figures are included, to show our true debt, the figures become far frightening.  

• stonedwolf

  Tell it to the Greeks.

• Amato1

  So much politics is played with this.The Banks bailout added eighty five billion to our headache, but compared to the other Countries in the news we are not at all bad although there is a serious deficit to deal with.. The coalition goes on about the mess they inherited but it was not so long before the last election that Cameron was pledging to keep spending at Labour’s levels.

  We had trade deficits of seven billion a month and everyone talked of a boom time. They have a strange way with figures.Make no mistake, had Labour formed the next government in 2010, the result would have been the same, no matter that they were only offering to halve the deficit in the parliament. That would have quietly been forgotten to keep foreign confidence, even with Ed Balls in the job as chancellor, but the thought of that was what killed it for Labour that time and will this time.With Alistair Darling there, the job would have been done just as well. The fact is he was the only one to come out of that government with his reputation enhanced, just as Roy jenkins did with Labour in 1970.