Thread by @EconMitch

With the UK's aid commitment being debated a commonly-cited argument (inc by @BBCNews) against it is

"A household that is having to borrow every year wouldn’t give to charity: it should pay off its own debts first”

Four reasons this analogy is wrong and the counter-arguments:

First, the Government isn’t a household - it won’t die, or retire, so the imperative to pay off debt isn’t the same. Indeed, as this @ICAEW chart shows, every G7 economy is in debt, the UK not particularly so.

Second, the assertion ignores assets - using the logic of the original statement, no household with a mortgage would give to charity until it was paid off. This is clearly not the case. In the UK's case, Govt. assets include our reputation & institutions (Parliament, BoE etc).

Third, it is right to say the Govt is borrowing to fund spending - increasing its debt - this is the ‘deficit’.

But this is normal - since 1970 there are only 6 years where it hasn’t run a deficit. As long as the economy grows by more than borrowing, debt compared to GDP falls.

Fourth, the Government controls the deficit with its spending and tax decisions. Again, households only directly control spend, not income - but the Government controls both.

So, the household analogy of borrowing and debt is wrong for all these reasons.

Of course, there's a debate about what's the right level to spend - but borrowing to invest in other countries' development is a reasonable thing to do.