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Oh, my, we’ve done it again. And so shot the other foot.

I can see how we got into this mess, but I do not see how we get out of it. Britain seems to be divided by age (youth vs grey), by locality (city v country), by nation (not only England v Scotland, but in the sense of failed devolution, equivalent to you having inter-state disagreements at a fundamental level). We have a completely different attitude in the capital to the rest of the country (and so I point to a failure of devolution).

We have very nearly elected a party that promised to spend (spend, spend) money paid for by everyone not in immediate need of state spending – free gains, is how that was received. For example, the student age vote was bought wholesale with a promise to get rid of student fees (and they don’t care how that is paid for, anymore than most of us do when offered a solution to a serious immediate problem).

We have as a result the position that no-one wants to be in power when Brexit is negotiated, probably because our Press will make sure that whoever IS in power will not be in power again for decades. So the two main parties are playing for the next election. Only this explanation makes the disaster of a campaign by the Conservatives (also called Tories) make any sense at all. The only other explanation with legs is that somehow the party allowed a small coterie sufficient power to screw up so royally.

Among the reactions I notice is that there is a serious mismatch between voting pattern of the paper press readership and what the very same press were advocating. That says to me that perhaps the paper press is no longer representing its readership, is missing its market and is perhaps nearer doom than I had thought. I am pretty sure that none of the sub-25s in the family read any paper press at all. 

I have a long-running question to which I have no adequate answer. I write in the hope that you can help put it to bed, resolved.

I read, all too often, that economic theory says that the nation state is different from the domestic position. This particularly applies to borrowing. I could not have bought my first house without credit, but the cost of that credit was so much that I worked hard to reduce that borrowing, having it well under control in 1990 and have been completely free of borrowing of any sort (I pay off my credit card every month) since 1997.   I can no longer conceive of a position in which I would want to borrow money, but at the same time I am aware that, having a sell-by date of under 30 years, I’m not in a position to petition for credit and that a nation state is not in such a position (since very few disappear / die).

I am told that Keynesian thinking says a state should borrow when the economy is slow (whatever that means) and pay it off when the economy is good. That implies there is a line above which one pays off and below which one borrows – it may be a region, and it may depend on the position of other competing states.  That is a statement of theory, unsupported by argument but no doubt I could find it. Is it an accepted truth and, if it was one, is it still?          This topic is revisited in essay 326.

Politically, what works is that one political side borrows whenever in power and the other one tries to rectify the situation – and it is quite possible that the political pendulum swings in reaction to those two positions.

As a nation, we are seriously struggling with poverty and with shortage of funds.

•  Our Health service (the NHS) needs a significant injection (haha), and there are two issues, our ageing population and our expectations. Coupled with that is the significant employment of non-Brits within the NHS.
•  Education is a perennial political football, but we can see too much evidence that the system is failing from a lack of funds: 
•  schools cannot afford to pay for experienced teachers, so they, the teachers, are leaving the profession in droves from lack of work (patently ridiculous, but true);
•  the education system cannot respond any better than that of health to the rapid growth in population from immigration;
•  the political failure to address what we do to serve well those at the lower end of the spectrum continues (it is all very well to encourage excellence, but the left hand end of the spread is guaranteed only failure).
•  Brexit is the (non-Republican) elephant in the room. For a combination of reasons, the small percentage difference between Leave and Remain has been taken as a definitive decision to leave, even though at the time 70% of our MPs were for Remain. We employ them to think for us on these matters, yet they went with the ‘decision’ and enacted Article 50, the commitment to Leave. Parliament is sovereign in this country, yet it acted against its own interests. Shot in the foot in several ways, or in several feet. We have no clear idea what this will mean, but, however the Europeans (I would in the past have written ‘other Europeans’) act, it is in their interests to ensure that no other country sees advantage in leaving the Union. There may well be a distinction between the ruling elite and the people of Europe; it is clear to me that there needs to be reform within Europe, as it is clear that it is not going to happen, because those in power have no interest in reforming and because the population is unable to effect that opinion. It would be ironic if the effect of the UK leaving the union was to cause the needed reform to occur.

It may be that the oft-repeated analogy of the domestic situation when describing the nation’s finances is simply wrong and inappropriate. In which case, it is our media that are the perpetrators of a misleading untruth. In some ways I find that too easy a target. It seems to me that the two should not be compared for the differences are surely sufficiently significant to render the parallels incorrect:
•  a nation does not come to an end (well, not often), where a household does, on the death of the principals. Thanks to death duties and similar taxes, the capital is not transferred on within a family, so the household comes to a stop.
•  a nation’s economy is far more complicated than a domestic one. This is partly because one lies outwith the other – the domestic one serves the nation with gains and losses. These are not equivalent to external trade. The nation state does not offer a parallel to the domestic. If so, such comparisons should stop.
•  like the domestic, external influences deliver effects. So the wish to change the level of borrowing may well be influenced by those external factors as well as the internal ones. What, pray, are the requisites for a change of attitude?

I put the central question (please explain how the state differs from the domestic) on Facebook this morning and have a few sensible answers excluding the political. The one I like most is that this is a complex system, too much so for complete understanding. We have as yet insufficiently good modelling to answer the what-if questions; we have far too few people able to admit that we don’t know (what we’re doing); we are perilously close to treating complex systems as causes to rely upon witchcraft or as a basis for religious levels of faith. The political appeal to emotion rather than reason, which might characterise the strange antics in both the US and the UK.

All of which suggest we are heading into a new Dark Age.

Your thoughts, please. Do interleave responses so you can pick apart each piece.”

This was the content of an email to my pal Cris in California, which is why I included what, to a Brit, is unnecessary detail.  I did put the question on Facebook and I copy below what response there was in the first hour. I will probably edit the whole for readability subsequently, but I feel enthused at the level of the language used in response to push it out immediately. I left the names mangled; if you want to know who is who, try the oracle itself.

DJS 20170612

image at top taken from the collection of images Google offered in response to my inputting Dark Age.

I then followed the link to the Huffington Post...

I posted a query on Facebook and had what I view as high standard replies (considering this is FB, not often used in this way, more’s the pity). I’ve separated strands with a line of dashes, and respondents in any single thread are defined by •, ••, etc. You may be able to find the whole skein, with names, on Facebook itself, but I’m forgoing that repeated trespass. Many of the respondents studied economics at university. Several of the respondents class as not-first-language English.

DJS: I keep finding the statement that nations state economics are massively different from domestic economics, yet I can find no explanations why this is. For example, how is it that it is wrong, in the eyes of some reputable economists, to reduce the national deficit ? (equivalent to reducing the family borrowing, which makes sense to me). Put that issue another way, can dramatic spending (NHS, education, etc) be financially supported? I entirely agree that we want such spending but where is the argument that it is financially sensible? I agree that sometimes spending produces net gains, but sometimes we simply cannot afford the cost of the expense – how is the state-sized position different? I most definitely don't want political attitude, I want the economics explained. Is it perhaps that putting borrowing on the never-never is different for a country? Anyone who can point to rational explanations, please do so. Or make them yourself, but I think I need longer than this medium encourages.

• Well, domestic debt has little impact on your ability to earn money in the future. For countries, spending money on things often means more infrastructure spending, people employed and so on. People say these things like "If you're in debt, you don't use more credit cards.", but of course you do when you're spending money on car repairs so you can keep getting to work on time and so on. It's much more akin to that.

DJS: But, at the domestic and business scale, the cost of the borrowing becomes a significant factor. You put yourself in the position of having to earn (or its equivalent) a load of value just to pay the interest. How can one possibly ignore that? I'm not saying you did, I'm saying that's what the position represents.

•  When I was an undergrad I could give you a more complete answer, but basically governments can borrow money for very little once you account for inflation and economic growth.
According to Keynes, they *should* borrow more when the economy is slow and pay it off when the economy is good. In practice governments hate to cut spending when the economy is good and we end up just borrowing all the time.

•• We all buy houses on credit. It is do that or do nothing. In fundamental terms it must be better economically to have millions doing something than waiting for movement of pieces of paper. Reread your "ragged trousered philanthropists". Money is a bartering system, not wealth. Wealth is manufactured items. Services and activity. .....And human emotion and sense of worth and belonging

••• Nations are different insofar as they can service significant debt and growth because they borrow very cheaply (as long as they don't default). More akin to very rich (asset or otherwise) people borrowing to invest.

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• One big difference. You may take out the loan, and pay very little back in interest for a year or two. You still owe the debt, though. But, if you are a government and borrow a few billion, the chances are that you (impersonally) will soon be out of power, and no longer responsible for the repayment. Hence the perpetual pendulum between big spending socialist governments and austere conservative ones.

•• You can't separate the politics from the economics. Like you can't separate the culture from music.

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• I can't really see the analogy being sound, yes the notion of paying back borrowing is obvious but the spending that a government does is almost infinitely more complex in terms of inputs and outputs of the total system than that of an family sized one. It is quite easy to look at personal spending and borrowing and say oh I'm a net gainer in this situation (returns on an investment maybe for example) but with the complexity of all the variables in government spending surely that is very difficult.
For example education; if you have to borrow to spend on education, hopefully, in the long term that will boost your economy and result in an ability to pay back more of what was initially borrowed. However, it is dependent on many variables such as parenting, teaching quality, local policy etc. This analogy would not work on the individual level really.
I think the same kind of thing is applicable to infrastructure spending, the idea is create a system that gains but there are so many variables it's very difficult to predict the reality of the situation. Look at HS2; it's designed to increase the productivity between the north and south and will cost a fortune, will it realise the gains it's supposedly going to facilitate? Doubtful due to many other external factors that may well have been unable to be seen in today's world.

DJS: Your words have merit, that the domestic situation is simply not equivalent. That may be sufficient answer. Yet, if you are right, why are we given the analogy so often? Is this the political effect of 'the people are too stupid to understand'? Is it that our political commentators themselves are thick? I think I agree with you enough to in future refute the suggestion that the domestic offers any analogy at all.

•   I think the system would be able to be understood fully but it is far too complex for any one human to do so. I think we are just standing on the cusp of AI deep learning that will facilitate this level of understanding. But yeah I agree with you and to be cynical of my fellow man (and myself), he is not able to comprehend the level of complexity and thus needs it framed in a way that is easy to understand, to put it nicely! Unfortunately, in my opinion, we are in an era of political perception being the defacto and whatever can sway people will be used for political gain. There also seems to be a real backlash again trusting "experts" and I think this is resulting in a "dumbing" down of very complex things so that the masses can make judgments etc.

DJS: Agreed. In a sense, when confronted with complicated systems, we find it easier to believe in witchcraft, or to fall upon belief (faith, even) rather than attempt to think and understand. We clearly need reliable modelling and we do not have that yet. Does that then mean we should admit we don't know what we're doing? It might be a useful admission.

•  That would be nice, but imagine the tabloid response! We are way away from that level of honesty! Look at what happened to Diane Abott when she forgot some figures. Hopefully one day politicians will be honest!

•  DJS: Exactly so. But I have maintained that the Press is the Enemy for quite some time. I am, today, hopeful that the younger generation, in rejecting the paper press, is dodging this. No doubt though, to be replaced by new forms of fake news, perpetration of deliberate rumour. In an environment where communication is less than perfect, that imperfection can be used by those with ill-intent all too easily.

•  Yeah and I think the struggle will go on until we have evolved into AI!
Actually, that is an incorrect term evolved into synthetic intelligence I meant. I think that the misinformation we see now if going to be even harder to separate from reality as we move towards a more hybrid existence.

••  The reason the analogy is used is because it is a simple, quick, understandable and relatable soundbite for the public, in order to justify austerity. Austerity is only really effective at redistributing wealth from the poor to the rich and is generally considered economically illiterate by those who study the subject in depth. As demonstrated by the discussion you are having, it is not easy, quick or simple to refute the analogy in soundbites that would fit in your average news programme section. Thus, economic policy is shaped by politicians and not economists and economic and social damage is justified.

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1. Financial leverage

Modern Economy relies on trading and international markets. Hot Cash flows across countries due to investments / Opportunities  Financial leverage is a common practice. Meanwhile for domestic point of view, financial leverage is rare? When financial leverage become a common practice for the domestics, they will found themselves suited as "corporate", that changed their status of domestics. Corporate directly affects nation states economy.

2. Nation n politics

Governments are bunch of beings only projects the future (5-10years) but not current. Hence everything happening now were implementation of plans of the last two or three elected. Giving the future projection cost/ investments are numbers on the paper, plans are approved by signature and a chop today and pay some other days ahead. ***projections are never accurate especially the crazy worlds nowadays changes too fast! The projections affected by Interests / inflations rates/ Currencies / debt / other factors and technologies matters.

For domestics, yes we plan what we plan to do for the upcoming years. Domestics alternate the plans easily and they always do. (Cost efficient / time efficient / lower opportunity cost...)

3.  tradition n non tradition Economic model

The economic model is outdated. It turns into an inaccurate instrument to measure through time flies. We are living in a bottleneck between tradition economic models and non tradition economic models. As above mentioned, corporates are directly affected the nations economy. Corporates are changing the behaviour of earnings and investment. Same as domestics.

4. Financial models

South east Asia banks give loans to domestics without charging a percent of interest. Because through studies, percentages and percentages add on to surcharges and loans give negative effects on the nation economy. Forgive me that I do have have reference on hand.

I fall in a non tradition business model categories. I do have some opinions and personal thoughts of the business and economic models.

Sorry , I am short sighted

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Perhaps we should realise that countries money is essentially a promise to pay. And that promise can be fulfilled by a further promise and if necessary a print run. Money on this scale is illusory.

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• An interesting question and some thoughts:

- The Government is able to borrow money at extraordinary low rates of interest, practically to the point of being paid to take the money – a bit like an interest free credit card. This allows the Government to ignore the financial realities that households face. Particularly if the rate of interest is lower than the rate of interest, effectively welding the debt.

- The household debt analogy used by the 2010 coalition was simply a way that they could illustrate why the debt had to be tackled for the Daily Mail's readership. However, the debt probably didn't need to be tackled in this way.

- Of course the Government can 'create' money, usually through QE.

- Imagine the absence of debt, without it there would be very little economic activity.

- Also there is the argument that this Government spending results from the vested interests, the lobbyists, the industrial military complex etc.

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•  I think that as I stated before the politics is essential to understanding the economics. Lending, borrowing and political standing are all entwined. The effects and amount you are able to borrow and at what rate are affected by the political status of the country. Also the need to pay it back, when and how, if at all is also effected. Some countries are run like the Mafia, and never have to pay back loans due to the potential threat of violence and some countries are like working class schmoes, who have to follow the rules to the letter...

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• There's a joke about no two economists ever agreeing. This is a question many sharp minded economists have argued about. I think the concepts of Ricardian equivalence and Keynesian economics will help you to an answer. My view is somewhere between the two that some borrowing is rational as it brings forward consumer utility at a very modest cost (interest net of inflation, and maybe a share of GDP growth) and provides for a happier society in the short to medium term.  Similar arguments apply for personal and corporate borrowing (corporate borrowing also has a real tax advantage).