The BBC’s Dharshini David tries to enlighten us on how to pay for the debt caused by Covid.

That’s in this presentation by her for the BBC. 

She trotts out the usual nonsense that comes from people who think government debt can be treated the same way as a household debt. I.e. she falls for the popular myth that government debt has to be repaid in the same way as a household debt is repaid.

The first flaw in that argument (as I’ve explained a dozen times on this blog) is that government debt does not necessarily need to be repaid in the normal sense of the phrase “repay a debt”. For example the UK’s debt/GDP ratio fell from around 250% in 1945 to around 50% in 1995 without any debt repayment at all!!!

What happened was that inflation eat away at the real value of the debt, plus there was real economic growth. Hey presto: the debt/GDP ratio fell.

But of course it’s possible the post Covid debt gives rise to a need to pay an excessive amount by way of interest on that debt, or (given that the debt is an ASSET as viewed by the private sector), spending and demand get excessive.

That problem can of course be cured by raised taxes or public spending cuts. But that does not, repeat not cut living standards. All it does is to keep demand down to the level that is compatible with minimising unemployment while hitting the inflation target.

But the latter is not the message you get from Dharshini David. The message you get is that we need to raise taxes and hand over money to some mysterious creditor in the same way as a household, after it has taken out a mortgage, repays the bank it got the mortgage from. And that repayment process clearly DOES CUT the household’s standard of living relative to a scenario where it got an interest only mortgage and made no repayment of capital.