Few aspects of our economy are as poorly understood among politicians and the general public as our monetary system. This becomes particularly obvious – and dangerous – during general election campaigns.
Last night Theresa May responded to a nurse’s concerns over pay in the NHS by saying “there is no magic money tree” to provide “everything that people want”. Other Conservative politicians have used the same line to attack Labour’s plans to increase public spending.
It’s an old trope. The argument goes like this: the UK has lived beyond its means for too long. The national debt now stands at an eye watering £1.7 trillion, meaning that we have saddled future generations with unsustainable debt and interest payments. We simply can’t go on spending money that we don’t have. Money doesn’t grow on trees – duh!
The only responsible course of action, the story goes, is to rein in spending and make “difficult choices”. Free school meals? Not anymore. Those new homes that we were promised? Forget about them. Investing in the technologies of the future? Don’t be so irresponsible. Upgrading creaking infrastructure? Come off it.
This narrative is incredibly powerful, as it chimes with peoples’ experience of managing a household budget. But in the context of a national government, it is almost entirely wrong.
It is true that the national debt stands at £1.7 trillion, or around 87% of GDP. But this is not particularly high by historical standards – after the Second World War the national debt stood at 243%. Imagine if Clement Attlee had listened to those who insisted that this meant Britain had to cut back public services. There would be no NHS, and no welfare state. Britain would be a very different place.