Krugman to UK: Don’t Worry, Be Happy

6 12 2011

Paul Krugman recently posted some interesting data regarding British debt to GDP from 1830 to the present. Krugman argues  that the current panic about the level of public indebtedness in Britain doesn’t really match up with the facts: relative to the size of the overall economy, Britain’s national debt is not massively larger than it was for much of its history.

Krugman makes a partially valid point. It is certainly true that the political right in both Britain and the United States have exaggerated the extent of the public-sector debt problems of those countries as a pretext for cuts to social spending. Compared to heavily indebted nation-states, such as Japan, the public debt burden in countries such as Britain and the United States is actually quite reasonable.  However, the data represented by Krugman’s chart tell us only part of the story (i.e., the total level of public sector indebtedness).  Krugman needs to take private sector indebtedness into account as well, a country’s total debt load includes the debt of financial institutions, non-financial businesses and private individuals (e.g., people with massive credit card bills).


This  chart, which depicts total debt levels as they stood in 2008, should be of concern to British policymakers, as it indicates that Britain was almost as heavily in debt as Japan. It’s just that the debt took a slightly different form.


More recent data shows that the problem hasn’t improved.  In fact, Britain remains the second most indebted major economy, ranking right after Japan.



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