6th December, 2009.
Most economists (who should know better) confuse the government’s budget deficit with total government debt.
The distinction really is important.
Mixing them up is a little like confusing stocks and flows. Or confusing your outstanding mortgage – say £200,000 – with your monthly debt repayments. They are quite different things, and if you were to lose your job, the flows (paid with your salary) come to a halt, and then it’s the stock – the £200,000 – that really matters.
Furthermore it is quite possible to increase your mortgage – and lower your monthly payments. Many did this in the boom years of mortgage re-financing. Or even to decrease your mortgage and increase your monthly payments.
So, just as the movements in regular mortgage payments tell us little about the outstanding stock of debt, so government deficits tell us little about the stock of debt invested and the stock of debt outstanding.