Borrowing from Peter to pay Paul
We can’t go on borrowing indefinitely, according to the Labour-Tory austerity mantra, and we need to reduce the national debt. One of the ways in which that is to be achieved is by getting private companies, or other countries, to fund infrastructure projects, because, of course, they have the money sitting in their piggy banks and don’t need to depend on borrowing. Or do they?
I’m far from being a fan of the Wylfa Newydd project in any event, but I noticed recently that there’s something curious about the way in which it’s being funded, when compared with the mantra referred to above. According to press reports, up to £12 billion of the construction cost will be funded by the Japanese government. So where, exactly, will the Japanese government find such a sum of money?
According to this list, the country with the largest public debt as a percentage of GDP is … Japan. (The link shows several different ways of assessing the level of debt – I’ve used the column showing the average of CIA and IMF data. Using one of the measures, the first and second positions of Japan and Greece are reversed, but the basic point still holds.) So a country which has a debt ratio of 90% of GDP (the UK) cannot afford to borrow more to fund its infrastructure development, but it will instead rely on another country whose ratio is 174% (Japan) to fund that development. By borrowing the money, of course.
Borrowing is fine, apparently, as long as someone else is doing it. It only brings about the end of civilisation as we know it when the UK borrows money. And that brings me back to a common theme on this blog – the decision as to whether a government should borrow or not owes more to ideology than to economics.