This coming week, the drumbeat will get louder with the rhetoric about the phony government debt/deficit "crisis". I’ll be writing more about this in conjunction with my new book, "It’s Not Raining, We’re Getting Peed On: The Scam of the Deficit Crisis". Today, I thought I’d focus on this specific point: debt is not a bad thing when we are building assets.
I talk about the point in the book but today the point was made by Martin Wolf, the chief economics writer for The Financial Times in an article entitled, "Assets matter just as much as cutting debt":
Yet governments should not sacrifice the future to the pressures of the present. What is the sense of cutting spending today if the result is a poorer country tomorrow? This point turns on its head the refrain that we should at all costs avoid burdening the future with additional debt. We should indeed avoid burdening the future with unproductive debt. Yet productive debt is not a burden, but a blessing.
What then is productive debt? This is a question raised by a thought-provoking paper by Oxford University’s Dieter Helm, an expert in utility regulation.* The kernel is the idea that all societies possess infrastructure assets, which should be thought of as systems. Transport, energy and water systems are examples. We also have education, health, market, financial, judicial, defence and political systems. The more complex the civilisation, the more complex are its systems.
The creation and development of these assets usually involves the state, as provider, subsidiser or regulator. The reason is that they have "public good" characteristics. Thus, they would tend to be underprovided by competitive markets.
The important points–which seem to escape the "crisis" junkies in BOTH parties–are made quite sharply.
When we build roads, health care systems, upgrade technological capabilities–all via government spending–we make the country RICHER.
If we pour trillions of dollars down a rat hole of immoral wars (read: Iraq and Afghanistan) and hand over hundreds of billions of dollars of our wealth to the richest one percent, we make the country POORER–because that wealth does not benefit the citizens of the country.
And the additional point that I highlighted at the end: we cannot rely on the "free market" to do these things. Only our government can provide many of the things that make us RICHER.
And for the handwringers on debt:
In the US and UK, net debt is close to zero: thus, debt is not a burden on society as a whole, but an obligation of some residents to others. As Nobel-laureate Paul Krugman points out, debt matters only because of who the debtors are. If, for example, debtors suffer an unexpected loss in net wealth or are forced suddenly to repay, the impact on the economy is bound to be fiercely contractionary. If the state can borrow, to offset this effect, it should do so. That would not impose an overall burden on a society, since net debt would remain close to zero. If it also raised GDP above what it would otherwise be, that would surely be a very good thing.
We do not have a net debt problem.
We do have a massive crisis–but it is the lack of good-paying work for one in five Americans.
That is what we should be focusing on. Not the phony debt/deficit "Crisis".
