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UK Austerity In The 19th Century: High Debt, Absolute Growth

ByEric Falkenstein
Published 06/17/2013, 02:25 AM
Updated 07/09/2023, 06:31 AM

I was watching Bloggingheads.tv, where Mark Blyth noted that contra Rogoff and Reinhart, Great Britain had a very high debt/gdp ratio at the beginning of the 19th century and then proceeded to have one of the best centuries of absolute growth in the history of civilization. Thus, debt is, if anything, salutary at really high levels, so the government should run higher deficits, etc. I've heard this argument quite a bit. See this chart from Wikipedia:
Chart 1

It peaks after the Napoleonic wars at 250%, well above the 90% number everyone has been talking about in the US. Note the clear decline in debt from Waterloo to World War 1. This is because the government started to perpetually run a surplus (see chart below, taken from here).
Chart 13

After the big wars, they would run surpluses regardless of the business cycle. So, was the prosperity from 1815-1914 caused by the debt in 1815, or the subsequent surpluses? Given the debt was used to make war, I don't think we can say it funded the public goods like roads that then generated 1000% returns.

I like Kevin Williamson's argument that the US is bound to default, and that's a good thing. Increasing the state doesn't create prosperity, rather, it first takes people out of the productive sector, then increases resentment because people given housing vouchers or make-work jobs know they are low status, undeserving relative to a billion other souls in the world. Better to let people find their way by getting out of the way.

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