Stephen Says...

Stephen Says...

This is my blog

sharing occasional thoughts about things that interest me

Household Economics

the state of the countryPosted by Stephen Sun, June 21, 2015 18:21:08

I applaud Professor Simon Wren-Lewis for his willingness to venture out of the ivory tower and to try and engage with the public in a discussion about economic policy (e.g. in the New Statesman 19-25 June 2015). And I really admire his use of blog-posts and twitter-tweets to try and bridge between academia and people at large. But I think he’d be even more successful if he built on the public’s clear understanding of household economics instead of using ‘household economics’ as a term of abuse to describe the Chancellor of the Exchequer’s misguided appraisal of the situation. Anyone who’s got, or has ever had, a mortgage understands that the big advantage over renting is that you’re living in the home of your choice, enjoying all the benefits it offers, whilst you’re paying off the debt the mortgage represents (on the way to ultimate outright ownership of the property). The national debt represents our collective mortgage on the infrastructure of the public realm (the institutions and the public space we live in as we go about our everyday personal, social and commercial business). We’re paying for it while we’re already using it. And everybody understands that the size of the mortgage we can afford is linked to the income we expect to earn. Looked at in this way, in the UK our collective mortgage (usually called state or public sector debt) is roughly two-and-a-half times our collective income (the state or public sector revenue-stream mainly represented by taxation). I doubt if this multiple would faze anyone who’s ever had, or hopes to get, a mortgage. In France and Germany the state debt is about twice the state’s annual income (tax revenue); in Spain and Italy it’s about the same as here; in Greece by contrast it’s over four times, only a bit more than the USA’s three-and-a-half times and nowhere near Japan’s six-times-plus! The goal of not having a mortgage makes sense if you’re going to get old and unable to hold down a job. Luckily the state doesn’t face this prospect; instead, when it’s paid off its existing mortgage it can take out a new one to pay for all those developments required to cope with changing collective household requirements (i.e. the national debt is really a rolling collective mortgage). I agree with Simon Wren-Lewis that “it is time for Labour to change the strategy to something completely different – to start telling the truth”. But I think the party will be more successful if the truth it tells chimes with everyday household experience: household economics in fact. I suggest that viewing the national debt as a collective mortgage would be a helpful start.