Debt, Truth and Politics

By Daniel Pryor

 

In his 2005 Nobel Lecture, Harold Pinter identifies the ‘scintillating stratagem’ of language being ‘employed to keep thought at bay’ [1]. Though the focus of Pinter’s polemic was the depravity of American foreign policy, one finds that his words resonate in discussions of other state activities. Intergenerational enslavement is commonly referred to as ‘government debt’ by political commentators, who are careful to distil the naked reality of ‘mortgaging the future of the younger generation’ [2] into blander, more comforting lexis. Where is the government going to get the money to pay its creditors? You. Your future output is being used as collateral. In the words of Oxford Economics Professor Simon Wren-Lewis, ‘the current generation can use it [government debt] to take resources from future generations’ [3]. This is widely perceived as being perfectly legitimate. I have seen the comments section of The Guardian website peppered with the sentiment that ‘our parents didn’t care about us picking up the bill, so we shouldn’t either’. The same appeal to tradition could presumably be used by Moctezuma II as justification for the Aztec practice of human sacrifice. Aside from neatly demonstrating the common logical fallacy of appeal to tradition, this ‘argument’ is obviously worthless to meaningful debate.

A recent estimate by the Institute of Economic Affairs estimates total UK national debt to be around £4.8 trillion [4], or £78,000 per person. The interest payment on this debt will cost £44.8 billion for 2012. This is around the same cost as fighting the war in Afghanistan. Twice. For the time being, UK borrowing costs are uncharacteristically low, as we are considered a comparatively safe haven for investors when compared to the beleaguered Eurozone. We are in a (temporarily) enviable position. Compare our borrowing costs to those of the Spanish government, who were recently forced to offer interest rates over three times as high as the UK in order to raise finance.  Now is the opportune moment to take advantage of favourable market conditions and erase the stain of our national debt, defaulting before the cost of borrowing inevitably begins to rise again.

The issue of government debt is not just ideological. It has important practical implications. Even after making the erroneous leap of faith that stealing from the next generation is perfectly acceptable, a key question remains. Is it sustainable? The resounding reply is no. According to Paul Krugman, a prominent advocate of higher government debt, governments need only ‘ensure that debt grows more slowly than their tax base’ [5]. Krugman cites the example of ‘World War II’, where the debt incurred ‘was never repaid; it just became increasingly irrelevant as the U.S. economy grew’. Au contraire, it was simply stolen from the American population under a different Pinter-esque misnomer: inflation [6]. Furthermore, Krugman’s faith in the perpetual growth of Western tax bases is presumptuous at best and ignorant of economic reality. The future is inherently uncertain. Reliable forecasts of a demographic time bomb in the UK [7] place an enormous tax burden on tomorrow’s generation through rising social security payments and healthcare expenditure. Yet even in the fallacious Krugtopia, where UK gilt yields remain eternally low and the tax base indefinitely expands, the inescapable fact remains that national debt is enslavement of the young by the old. That enslavement is unacceptable.

 

Daniel is currently in the second year of Sixth Form study with a view to read PPE at degree level, and tweets at @DanielPryorr. He passes the time by raising tempers, playing guitar and drinking vast quantities of miso soup.

 

 

[1] I would highly recommend watching Pinter’s ‘Art, Truth and Politics’ video lecture. http://www.nobelprize.org/mediaplayer/index.php?id=620

[2] Taken from Niall Ferguson’s June 2012 article on public debt. http://www.telegraph.co.uk/finance/financialcrisis/9338997/Reith-Lecture-Were-mortgaging-the-future-of-the-younger-generation.html

[3] ‘The Burden of Government Debt’ by Simon Wren-Lewis. http://mainlymacro.blogspot.co.uk/2012/10/the-burden-of-government-debt.html

[4] ‘A Bankruptcy Foretold 2010: Post-Financial-Crisis Update’ by Nick Silver. http://www.iea.org.uk/sites/default/files/publications/files/upldbook516pdf.pdf

[5] From the modestly titled ‘Nobody Understands Debt’ by Paul Krugman. http://www.nytimes.com/2012/01/02/opinion/krugman-nobody-understands-debt.html

[6] In a recent televised debate with Professor Krugman, Congressman Ron Paul states in plain terms that ‘inflation is theft’.
http://www.youtube.com/watch?feature=player_embedded&v=a62dNGqQfNM#

[7] The number of people aged 85 and over is projected reach 5% of total UK population by 2033.
http://www.ifaonline.co.uk/professional-adviser/feature/1587624/long-term-care-a-demographic-timebomb#ixzz2Aj0NhvUs

14 COMMENTS

  1. Alasdair, first off thank you for commenting! In answer I’d like to quote Murray Rothbard, who addresses the precise point your making in a manner far more urgently than I could. ‘The standard economic argument is that such repudiation [of national debt] is disastrous, because who, in his right mind, would lend again to a repudiating government? But the effective counterargument has rarely been considered: why should more private capital be poured down government rat holes? It is precisely the drying up of future public credit that constitutes one of the main arguments for repudiation, for it means beneficially drying up a major channel for the wasteful destruction of the savings of the public.

    What we want is abundant savings and investment in private enterprises, and a lean, austere, low-budget, minimal government. The people and the economy can only wax fat and prosperous when their government is starved and puny.’

  2. Yes, the national debt is a serious long-term problem, that hasn’t been taken seriously enough by governments in the past. But suggesting *defaulting* as a cure just shows that you don’t really know what you’re talking about.

    Governments will always need to borrow, even if the national debt is eliminated; defaulting on it is the surefire way to make that borrowing much more expensive. After all, who would want to lend to the UK, knowing they might not get it back? At the moment, the government can thankfully borrow at low prices, because it’s trusted to pay its debts; if it couldn’t, the only way to fill the gap would be with much higher taxes. We’d be staring down the same dilemma that Greece are at the moment, and no one wants that.

  3. @tommy5d what utter rot, the only people that would not be able to borrow would be Government. Business and Individuals would be able to borrow as normal, just like when my parents go bankrupt it doesnt effect my credit score when the state goes bankrupt the businesses which happen to be in that state aren’t effected

  4. Thank you Tom, much appreciated! Politicians in a democracy are very much the victims of inherently perverse incentives. Their goal is to win the next election, not improve the long-term prospects of the country, as can be demonstrated by the mountain of debt faced by my generation!

  5. Are you genuinely suggesting we should default on our national debt? This would prohibit British businesses and individuals from borrowing at all, perhaps something you favour but something that would certainly kill “capitalism”.

  6. Daniel, what a brilliant piece of work, it will be too technical for some minds so please do not mind if I simplyfy it. We are living in a fools paradise, swimming in a sea of debt that governments, particularly the last one conned us into believing it was honey and milk. We all need to wake up and face our responsibilities before we all drown and drag our children and grandchildren down with use. Do not heed the two Eds lies about them having a life raft, that two, if it exists will sink with the rest of us.
    PS. Knowing that this is all true, even the most dense among us can see what a farce it is borrowing still more money to send abroad to the EU and in Foreign Aide, thus increasing our debt. What do Politicians have in their heads for brains?????

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