Austerity, border queues and bank holidays (R4)
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What is the main topic discussed in this episode?
This is More or Less, the statistical spine of an otherwise floppy media. The programme now airs year-round on the BBC World Service, but this is a full-length episode from Radio 4. Hello and welcome to More or Less, the programme that takes a statistical scalpel to the festering wound of public debate. Now, despite the fact that they shunted us out of our old time slot, we are more or less our admirers of the world at one. But on Tuesday, while Martha Carney was luxuriating in her acres of extra airtime with the Conservative Party's co-chairman, Saeed Avasi, this happened.
And that we must remain on track. Because you're so keen on keeping interest rates low and cutting the debt, that you're actually forgetting about growth. And that's what's important. And we're seeing much higher levels of growth in the United States, for example, which hasn't cared so much about cutting its debt. Well, if you look at the figures from the US, they've actually cut debt deeper and they've cut it faster. So it's a myth to say that they haven't.
Ooh, hang on, I'm not sure that's right, is it? Let me just summon Stephanie Flanders, the BBC's economics editor, by beaming this huge pound symbol onto the underside of some low cloud. They can't say that, can they, Stephanie?
Well, this is one of those exchanges that I hear often and it pains me every time I hear it because I'm afraid to say both the interviewer and the interviewee have made that classic mistake that everyone makes, some of the best politicians, some of the best journalists make, which is the difference between the deficit and the debt. If we think about it very carefully, maybe we'll remember it finally. The debt is the accumulated amount of debt, borrowings that you've had in your lifetime. So it may be the size of your mortgage, for example, is your debt. That's how much you owe. And then there's the borrowing you do on a day-to-day or a week-to-week or a year-to-year basis. That's the deficit. So how much the government has borrowed this year to meet the gap between its spending and
and its tax revenues, is the deficit. And at the end of the year, in effect, that amount has been added to its stock of debt, which is always, almost always, a much, much bigger number. And there is no country that's cutting its debt at the moment. If you look at the figures, there's no US, Britain, Germany even. They're not on course to lower their debt as a share of their economy for years.
Well, we called Conservative Central Office and asked them to tell us what Baroness Varsi actually meant to say.
How do UK and US deficit versus debt comparisons explain the 'grand economic experiment'?
Here's what they told us.
I'm going to assume that Baroness Vasi meant to say the US was cutting its deficit harder and faster than the UK. But if that's the case, it's surprising news, because there is this idea floating around that there's something to be learned from comparing the experience of the UK, which is popularly supposed to be raising taxes and cutting spending, versus the experience of the US, which is popularly supposed to be avoiding such austerity measures. Here's Anatole Kaletsky of The Times.
What's been going on, although it's been very uncomfortable for many people and economies, has been one of the most fascinating periods in history because there's been a sort of controlled experiment going on between America and Britain.
And Anatole thinks the American stimulus is comfortably outperforming the British austerity. So if we return to the alternate universe in which Baroness Vasi actually said the US was cutting its deficit more than the UK, is that true? Time to activate the Stephanie Flanders emergency signal again.
If you look at the overall deficit for the US, and that includes not just the federal deficit, but also everything that the states are doing, it's fallen from 13% of GDP in 2009 to 8.1% this year. That's what the International Monetary Fund is forecasting. So that's a fall of nearly 5% of GDP, whereas if you look at the UK, our deficit hasn't fallen nearly as far. It's gone from 10.4% of GDP in 2009 to 8% of GDP this year.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:00–2:25
2
How do UK and US deficit versus debt comparisons explain the 'grand economic experiment'?
2:25–7:30
3
What’s the difference between deficit and debt and why does it matter for policy claims?
7:30–19:26
4
Are the US and UK actually cutting borrowing faster — what do IMF and structural deficit measures show?
19:26–27:35
5
How do economists explain different growth outcomes beyond austerity policies?
27:35–27:57