Home > Financial arcana > Note to debt doomsayers

Note to debt doomsayers

When someone buys a country’s government bond, the government needs to pay it back on a specific date. If the government refuses to do so, there will be a total collapse in international confidence in the debt of the country and of all its banks, companies and residents, a currency crisis, and generally a wide range of Very Bad Consequences.

When someone works for a country’s government and is told they’ll get a nice fat pension, the government can decide to not pay it. This will upset the person who works for the government quite a lot, and might be perceived as somewhat unfair. However, the consequences for the country’s ability to borrow, invest and trade in international markets are non-existent.

Therefore, anyone who counts public sector pensions as a liability faced by the UK government in the context of the current financial crisis (generally as a way of saying ‘ooh, we’re nearly as bad as Iceland’ – Nadeem Walayat, this means you) either doesn’t understand what they’re talking about, or is trying to mislead their audience into thinking things are much worse than they really are.

Categories: Financial arcana
  1. December 18, 2008 at 12:37 am | #1

    To be fair, the fact that public sector pensions have an NPV of £1 trillion odd is not news. So it's not so much that "things are worse than we thought" but "things have always been worse than we thought".

  2. Matthew
    December 18, 2008 at 12:54 am | #2

    Which raises an interesting point of whether public sector unions should campaign for their members pensions to be paid in the form of specially issued gilts?

  3. December 18, 2008 at 4:58 am | #3

    What is the net present value of the future infinite horizon unfunded defence liability? Surely, unless we immediately privatise the armed forces, we should add the total future defence budgets capitalised at some suitable interest rate to this year's PSNCR? In fact, we could reform the public sector accounts so that the entirety of future government spending would be capitalised in this year's books.

  4. December 19, 2008 at 9:42 pm | #4

    "When someone works for a country’s government and is told they’ll get a nice fat pension, the government can decide to not pay it"

    The chances of that are roughly equivalent to a snowball in hell! I have forgotten, or perhaps buried it deep in my sub-conscious as being too awful to contemplate, the percentage of our workforce who swing from the government teat but suffice to say that there are millionsof them and *they all have votes*. Need I say more?

  5. ajay
    December 20, 2008 at 3:53 am | #5

    Duff (and ne'er was man more appositely named), someone who does a fair day's work for a fair day's pay – the government is part of the labour market, competing against private sector employers for the same pool of labour, and therefore pays at market rates – is not "swinging from the government teat".

  6. December 20, 2008 at 7:30 am | #6

    Ajay, in the interests of clarity and precision, would you care to have a go at defining the word "fair" in the contexts in which you have flourished them like a slogan?

  7. December 20, 2008 at 11:12 pm | #7

    You see, this is (one of the reasons) why I will never vote Conservative; they don't seem to be able to accept, to coexist with, anyone who doesn't agree with them – or in fact, anyone who belongs to a group they don't expect to agree with them. It's always the Decent People vs the Enemy Within.

  8. December 21, 2008 at 2:29 am | #8

    Alex, are you alright, old chap? I mean, one never expects commenters on blogs to stick strictly to the point, but a whole paragraph of non-sequitors is a bit odd. Perhaps it's something to do with living in Yorkshire. Have you ever considered moving south?

  9. December 21, 2008 at 3:55 am | #9

    Look – you seem to imagine that a) all public sector workers are unnecessary and b) they are all anti-Conservative. You even refuse to accept that they actually work.

    Whether you think the state should be bigger or smaller, you should surely accept that it will exist and that the people who work for it are, well, people. You do realise the historic peak of the public sector share of GDP was in the second Thatcher government?

    It's pretty fundamental to democracy that you accept the legitimacy of the other side. I mean, you'd have to go a long way to find anyone who thinks we should confiscate the entirety of the private sector because those capitalist bloodsuckers will always vote Conservative; but pretty much every Tory and 'kipper in the sphere regularly argues the opposite.

  10. December 21, 2008 at 5:11 am | #10

    Alex, calm down, dear, it's only a misunderstanding – and the misunderstanding is all yours!

    Please re-read what I wrote and you will find that nowhere do I make *any* comments on the virtues or vices of public sector workers. All I did say was that there were a huge number of them and that because they all had votes the government was unlikely to rat on their pensions. True, I did describe them as hanging from the government teat but in view of the *fact* that all their pay and perks and pensions come from the government (or to be precise they come from us – or *me*, as I like to think of it) that is simply a statement of the 'bleedin' obvious', or the truth, as some people call it.

    However, as you raise the subject, I do not think that all public sector workers are unnecessary, only about two thirds of them. I have no idea what their politics are except that they will vote against *any* government that threatens their pensions. So would I if I were a government worker.

    Finally, I am not a Tory.

    And I'm still waiting for 'Ajay' to define "fair"!

  11. ajay
    December 23, 2008 at 1:15 am | #11

    Read on in my (uncharacteristically) short one-sentence comment and you'll find it defined as "at market rates". IE a cleaner in the MoD doesn't get paid much differently from a cleaner in the offices of Standard Life.

    I'm curious about this:

    "I did describe them as hanging from the government teat but in view of the *fact* that all their pay and perks and pensions come from the government (or to be precise they come from us – or *me*, as I like to think of it) that is simply a statement of the ‘bleedin’ obvious’, or the truth, as some people call it."

    Anyone who works for anyone else can be described as "hanging from their teat"? Wow. All the pay, etc. of a Tesco shelf stacker comes from us too. Are they also humiliatingly dependent?

    You said something stupid without thinking first, and now you're trying to put the toothpaste back in the tube. You used a phrase which implies that all government employees are simply parasites – or, to be more accurate, unproductive, inert offspring who merely consume resources. And then you say "you will find that nowhere do I make *any* comments on the virtues or vices of public sector workers" – and that's a lie, Duff. I know it and you know it.

    "I do not think that all public sector workers are unnecessary, only about two thirds of them."

    Saloon bar politics at its finest, unadulterated by the poison of fact. If you had the slightest shred of intellectual decency you'd admit that you plucked that two-thirds figure out of the air. And you have the gall to accuse me of being unclear and "flourishing slogans"!

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