A New Party: The Austerity Party

What if a new political party arose called The Austerity Party? (Don’t read into this piece what I must believe if I post something like this — the issue here is How best to reduce debt to sustainable levels?)

Niall Ferguson

Governments should be more honest about the size of their debts and young voters would be wise to get politicians to pay them off as soon as possible, says economic historian Niall Ferguson in the first of his BBC Reith Lectures.

The critics of Western democracy are right to discern that something is amiss with our political institutions. The most obvious symptom of the malaise is the huge debts we have managed to accumulate in recent decades, which – unlike in the past – cannot largely be blamed on wars.

According to the International Monetary Fund, the gross government debt of Greece this year will reach 153% of GDP. For Italy the figure is 123%, for Ireland 113%, for Portugal 112% and for the United States 107%.

Britain’s debt is approaching 88%. Japan is the world leader, with a mountain of government debt approaching 236% of GDP – more than triple what it was 20 years ago.

Society is indeed a contract. The state is a partnership not only between those who are living, but between those who are living, those who are dead, and those who are to be born.”

Edmund BurkePolitical theorist, writing in 1790

Now, often these debts get discussed as if they themselves are the problem, and the result is a rather sterile argument between proponents of “austerity” and “stimulus”.

I want to suggest that they are a consequence of a more profound malfunction.

The heart of the matter is the way public debt allows the current generation of voters to live at the expense of those as yet too young to vote or as yet unborn.

 

About Scot McKnight

Scot McKnight is a recognized authority on the New Testament, early Christianity, and the historical Jesus. McKnight, author of more than fifty books, is the Professor of New Testament at Northern Seminary in Lombard, IL.

  • Chris

    I disagree. The heart of the matter is that governments (via creditor “bribery”) have enabled a relatively small number of creditors to engulf a massive number of debtors in a Ponzi scheme. The creditors will never collect on their debts. The quickest way to resolve this issue is for the creditors to acknowledge their culpability in the matter and to take their medicine (losses) now that they’ve upset the economic balance. Yes, the debtors did take on that debt but they are never going to repay it (including both personal and government debt); simple reality dictates this. The book “Paper Promises” by Philip Coggan states this quiet cogently. To move the economic process forward requires capital flowing again with more balance in the creditor/debtor equilibrium. Call in Jubilee or call it justice–either way the system is demanding a reordering of this imbalance and that will be the best hope of the emerging generation(s).

  • fb

    i agree with the post and disagree (for the most part) with chris #1. yes, creditors should take the hit on some of that ridiculous debt. but the fact is that countries borrowed WAY more than they should have, robbing future generations to pay for benefits for the present one. they do this under the guise of a social contract that promises future benefits to the current generation, but those benefits are less and less likely to ever be paid. this is fraud, and it is immoral for the current generations to presume upon the generosity of future generations. it used to be that we made sacrifices to allow our children and grandchildren the possibility of a better life; now, we force sacrifice upon them so that WE can live better. what is out of balance is how much we expect them to carry us — /that/ is what is wrong.

  • Larry Barber

    There’s no reason for a sovereign state to go into debt in the first place. They can simple issue the currency for whatever level of spending they want. It’s not like money is backed by gold anymore, if a government can issue bonds they can issue currency. The current system of borrowing money simply unjustly enriches a small proportion of the population (bankers) at the expense of everybody. It needn’t be anymore inflationary than borrowing, the central banks create money out of nothing, so what’s the difference if the government does the same? Even if the government overdoes the money creation and creates inflation, the inflation will stop as soon as the government starts behaving, if the banks overdo the money creation and triggers inflation there is a hangover of debt repayments that can last for generations.

  • Larry Barber

    And if we must have “austerity” so we can repay the banksters, could we at least start the budget cutting with the military and corporate subsidies, rather than first cutting the programs that help people (people other than corporate executives, I mean)?

  • http://mpzrd.blogspot.com Marshall

    There’s plenty of money around; it’s just that the debt is over here and the money is over there. Imagine the nerve of these people, who sell the poor in spirit a bill of goods and then call them moral idiots because they got taken so easily. While laughing all the way to the bank.

    And don’t say the United States deficit has nothing to do with war; that would be a fat one.

  • Peter

    Just to clarify: is there a suggestion here that we (borrowers) should not pay back what we’ve borrowed to the lenders (“Banksters”) because they’re evil and we hold the moral high ground?

  • Paj

    Of course this in the main is a ‘Western’ problem. Just look at the savings rates of South East Asian countries and who are a substantial buyer of US treasury stock.

    I suspect it will be compounded by the aging demographics of the West.

    Yet talk of restraint left the public square in the 1990s in Australia.

    Feed by the idolatry of greed, Australians don’t vote on issues but for economic well being. Indeed the current Federal Government will most likely lose power over a lie re the introduction of a carbon tax. I doubt it would if the lie revolved around a moral issue exclusively.

    Our debt will need to be paid back and yes the burden is on those less than 50 yrs of age.

    “give me neither riches nor poverty”

  • nl

    Yes. The Bush-Obama policies of bailouts and stimulus programs have been building up debts while creating no assets to provide benefits for the future.

    The size of the federal government has been growing faster than the economy for decades and it is driving the USA toward the edge of a financial cliff of disaster from which there will be no quick and easy recovery. The political parties in control of the White House and seats in Congress have changed but the policies of unfunded government spending have not changed. Both of the major US political parties have been drinking in the idea that unfunded federal government spending creates benefits. Since the time of President Ronald Reagan we have been living off the idea of the Laffer curve but this idea only has a chance if the economy grows faster than the size of the federal government and that hasn’t happened but rather the federal government has grown much faster than the size of the economy.

    The share of the national debt is now approximately $50,000 per person and of course many persons are babies, kids, seniors, disabled, unemployed, and others who don’t pay into taxes and other revenues to fund the federal government. How many of us can afford even the interest on such debt for each member of our family while the principal itself should also be repaid.

  • Larry Barber

    Peter (#6) the Bible calls that a “Jubilee”.

    You also don’t have to dig too deeply into the causes of the current recession/depression to realize that Wall Street bankers are, by and large, pretty unethical. One study found that 10% of the employees of Wall Street banks were clinical psychopaths!

  • Chris

    I will reiterate. When governments do not serve to balance the relationship between creditors and debtors, they have failed. When they initially side with the creditors and do not require them to be responsible and live under the moral hazard of loss from taking foolish risks, it does the creditor no favor. Indeed, that imbalance will inevitably lead to economic failure. The only way for economies to recover from failure is to restore the balance by debt reduction. This argument can be made of nations indebted to other nations. The creditor nation must accept responsibility (and loss) for foolish lending.

    It’s quite a pickle that the Chinese are now in because they have lowered their currency value thus making their labor cheaper and siphoning jobs from the debtor US nation. How are they now going to demand payment of debt when they have manipulated the economy to undermine the nation who actually borrowed from them purchase the items their cheaper labor produced.

    I tend to believe in a more tightly regulated creditor/debtor relationship for a robust world economy. Governments including the US, China, Germany and Greece have all been playing fast and loose with credit and debt. It’s rather disingenuous to blame the debtors for appropriating what has been made available to them but would be unable to repay. It is always the creditor that violates the moral hazard before the debtor does. And when they do it with the complicity or negligence of government, they have simply purchased their own failure. Whatever they sow, they eventually reap.

  • Peter

    Chris & Larry (9&10) – thanks for making that clear.

  • Patrick

    I’m 57 now and an impression I have is it is inevitable we will do our own “Greece”. I just don’t know when. We might get another century who knows? We have advantages Greece did not have. Besides being so much larger, we have the dollar as a reserve currency and from what little I can figure, that gives us a huge advantage over everyone else.

    I see nothing that can be done. Ferguson is likely accurate, but, no one can change the paradigm, not democrats, not GOP and not a combo. We’d fall apart as a society at this point if the state literally cut spending. Too many of us are now dependent on the state.

    The only way out is dramatic economic growth and as any economy gets more mature, economic growth becomes harder to achieve in large numbers and we will need to do it in perpetuity which is not how the world works.


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