The Financial Crisis of 2007/8 was a crisis of private debt. It only became a crisis of public debt when states around the world made the taxpayer guarantor for this debt and bailed out banks. However, since then conversation and policy has focussed almost exclusively on public debt, as if this were the source of the crisis. This has seen devastating impacts on public services, and public perceptions on the welfare state. In doing so, the government is not solving the financial crisis, but causing it.
Public Debt before and after the Financial Crisis
In the last year before the Financial Crisis, public spending in the UK stood at 41% of GDP and national debt was just 44.1% of GDP. This was consistent with the level of debt and public spending as a proportion of GDP for around the last fifty years.
Running budget deficits has also been a…
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