Economics For The Brain Dead

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One of the things that annoys me most about Economic theory is that so many people try to simplify it. But, by simplifying it, you actually don’t actually explain it correctly at all, and just confuse the issue further.

Take the old classic of comparing the governments budget to the average house hold budget. Now your basic household budget (if you’re responsible enough to ever commit it to paper) may look something like this

Income Expenditure
Wages: £1500 Rent £750
  Food £200
  Utilities £200
  Phone/ Internet £50
  Transport £100
  Entertainment £100
  Clothing £50
  Other £50

A simple list of money coming in and money going out, and hopefully the money coming into your accounts is equal to or more than the money going out, and if its not, you make a few tweaks here and there to cover your nut. With me so far?

Well this all looks good and proper on paper, but what happens when there an unexpected bill or you get laid off, or any number of other things that can happen? You probably turn to over drafts and credit cards, Am I right? Well that sort of thing makes up a household budget, and when you can’t pay your credit card and your overdraft, well then the bailiffs come’a knockin’.

And now were led to believe that the budget of our countries government operates on the same way? Somehow I don’t think so.

Income Expenditure
Taxation £100 BN NHS £20 BN
The EU £50 BN Military £20 BN
Loans £50 BN Heritage £10 BN
  The BBC £10 BN
  Propping Up Businesses £10 BN
  Art’s £10 BN
  Education £10 BN
  The EU £60 BN
  Loan Interest/Repayment £10 BN
  Foreign Aid/ War Reparations £20 BN
  Highways £10 BN
  Benefits/ Pensions  £10 BN
  Benefit Appeals £5 BN
  Policing £10 BN
  Local Government £100 BN
  Science and Tech investments £10 BN

As you can see running a country is an expensive business (figures for illustrative purposes only). So what happens when the cost of running the country is more than the amount raised in taxes? Well first off there are two schools of thought, the left will recommend raising taxes and the right will advocate making cuts to services and expenditure (why since 2010 the Conservative Government has held austerity as its policy). When these options inevitably don’t go far enough in terms of raising money (but go far to far at the expense of ordinary people), the national debt will increase to cover the shortfall. In household terms, increasing the national debt to pay ease the budget deficit is like taking out a Wonga loan to cover your credit card bill (or would have been before Wonga went bankrupt).

And if the country can’t afford to pay back these debts? Well it isn’t as if the bailiffs are going to reposes Sunderland and a few of the Home Counties for non payment is it? The only real consequence that the country could face are increased borrowing fees in the future, as they are now a credit risk (yes it is gratifying to know that even countries have credit scores), but in real terms there is now law to protect Sovereign debts, so if Britain did default, its more likely to be the people in the streets that would suffer (Value of the Pound drops, prices go up, inflation rises and interest rates skyrocket).

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