- 26 Jun 2012 13:52
#13993367
Recently we have seen the EU, and in particular Germany, attempting to impose strict fiscal rules on countries such as Greece in return for continued financial support. This has meant that the Greek people have lost a great deal of democratic control over their economy, and since running the economy is such an important function of government, it could easily be said that modern Greece is far less a democratic than it once was.
Many on the left blame Germany for these restrictions. They claim that the rules imposed by Germany are far too harsh, and are preventing any hope for recovery. Meanwhile the right points to how much Greece still needs to do in order to resolve it's long term structural deficit.
So has the EU, via the bailout conditions, made Greece undemocratic? To answer this, I'd first ask you to consider what happens to debtor nations when there is no major international body such as the EU to bail them out. It's not hard to see examples over recent years, we can look at both South American countries such as Argentina, and Asian countries such as South Korea.
In all cases, the market forced these countries to adopt harsh, sometimes even draconian, cutbacks. In some cases, democracy was completely subverted in order to pay the debts (see Naomi Klein's "Shock Therapy" for more detail). So the EU is not causing these economic restrictions - they should instead be blamed on the debts themselves.
From this, I'd draw the conclusion that incurring a substantial structural deficit within a democracy is morally wrong. Any form of debt imposes restrictions on the choices available to the next generation of voters - people who at the time the debt is incurred have no say whatsoever in elections due to being too young to vote. If the debt is substantial, then these restrictions become very harsh indeed - as we can see in Greece.
Of course, small levels of debt might be needed to cover ongoing running of a country - just as businesses may take out temporary loans in order to pay wages in the anticipation of future income. After all, it's not always easy to predict tax receipts with certainty. But that is quite different from planning an economy based on a deficit.
As far as I am concerned, countries should only plan for substantial deficits under two circumstances:
- When at war. A country defending it's very existence and the freedom of it's people may need to make compromises.
- When recovering from a natural disaster. If the natural disaster is of a temporary nature, then it makes a great deal of sense to me to incur debt in order to rebuild infrastructure, since in this case, rebuilding is so often an excellent investment for the country, and it's relatively easy to make accurate estimates of the value of infrastructure projects.
I know there are several other cases where many would claim governments should borrow substantially - I will address a couple of them.
- For investment in infrastructure. The theory here is that with the new infrastructure will come a stronger economy, which will allow debts to be repaid. The problem with this approach is that it ignores the possibility of corruption. It is far too easy for major companies to manipulate figures in order to make infrastructure appear far more promising than it is likely to be (see the book "Confessions of an Economic Hitman".) Politicians will take bribes, or merely succumb to lobbying, and plenty of dams, railroads and motorways are built at ruinous expense. These sort of investments are effectively business management decisions, and very few politicians have the requisite experience in business. I would see this case as the false justification behind a great deal of third world debt, as well as the debt of many Western nations such as Britain. It's much safer for the electorate to just reject the idea completely, rather than allow politicians free reign. Forcing politicians to decide spending only based on current government income should help concentrate their minds, and invest more carefully.
- To recover from recession. This is Keynsianism. The problem in this case is to easily identify whether the recession is caused by a short term problem, akin to a natural disaster (e.g. a bank crash), or whether there are deeper underlying causes to the recession (e.g. a failure to find a strategy to compete with cheap Asian imports). In the first case, then spending may be justified - however in the second, if a country has serious underlying economic weaknesses, then taking on debt will only delay adjustments that need to be made, and will eventually result in the country digging an ever deeper hole for itself (e.g. Greece). It's often quite difficult for most voters, even those who are more educated, to fully understand the underlying causes of a recession - especially when partisan journalists and politicians frequently do their best to muddy the waters. So in this case, taking on substantial debt is a gamble. The government is effectively saying "I am betting our children's freedom that this recession was only due to a short term weakness". I simply don't trust our politicians to make that kind of bet.
P.S. I expect some Libertarians might want to respond to this post. But I'd rather they didn't, since any debate as to the merits or otherwise of Libertarianism is likely to substantially derail any discussion about the primary subject of this post (government debt). You guys are welcome to make your own topics!
Bill Clinton wrote:It's the economy, stupid
Recently we have seen the EU, and in particular Germany, attempting to impose strict fiscal rules on countries such as Greece in return for continued financial support. This has meant that the Greek people have lost a great deal of democratic control over their economy, and since running the economy is such an important function of government, it could easily be said that modern Greece is far less a democratic than it once was.
Many on the left blame Germany for these restrictions. They claim that the rules imposed by Germany are far too harsh, and are preventing any hope for recovery. Meanwhile the right points to how much Greece still needs to do in order to resolve it's long term structural deficit.
So has the EU, via the bailout conditions, made Greece undemocratic? To answer this, I'd first ask you to consider what happens to debtor nations when there is no major international body such as the EU to bail them out. It's not hard to see examples over recent years, we can look at both South American countries such as Argentina, and Asian countries such as South Korea.
In all cases, the market forced these countries to adopt harsh, sometimes even draconian, cutbacks. In some cases, democracy was completely subverted in order to pay the debts (see Naomi Klein's "Shock Therapy" for more detail). So the EU is not causing these economic restrictions - they should instead be blamed on the debts themselves.
From this, I'd draw the conclusion that incurring a substantial structural deficit within a democracy is morally wrong. Any form of debt imposes restrictions on the choices available to the next generation of voters - people who at the time the debt is incurred have no say whatsoever in elections due to being too young to vote. If the debt is substantial, then these restrictions become very harsh indeed - as we can see in Greece.
Of course, small levels of debt might be needed to cover ongoing running of a country - just as businesses may take out temporary loans in order to pay wages in the anticipation of future income. After all, it's not always easy to predict tax receipts with certainty. But that is quite different from planning an economy based on a deficit.
As far as I am concerned, countries should only plan for substantial deficits under two circumstances:
- When at war. A country defending it's very existence and the freedom of it's people may need to make compromises.
- When recovering from a natural disaster. If the natural disaster is of a temporary nature, then it makes a great deal of sense to me to incur debt in order to rebuild infrastructure, since in this case, rebuilding is so often an excellent investment for the country, and it's relatively easy to make accurate estimates of the value of infrastructure projects.
I know there are several other cases where many would claim governments should borrow substantially - I will address a couple of them.
- For investment in infrastructure. The theory here is that with the new infrastructure will come a stronger economy, which will allow debts to be repaid. The problem with this approach is that it ignores the possibility of corruption. It is far too easy for major companies to manipulate figures in order to make infrastructure appear far more promising than it is likely to be (see the book "Confessions of an Economic Hitman".) Politicians will take bribes, or merely succumb to lobbying, and plenty of dams, railroads and motorways are built at ruinous expense. These sort of investments are effectively business management decisions, and very few politicians have the requisite experience in business. I would see this case as the false justification behind a great deal of third world debt, as well as the debt of many Western nations such as Britain. It's much safer for the electorate to just reject the idea completely, rather than allow politicians free reign. Forcing politicians to decide spending only based on current government income should help concentrate their minds, and invest more carefully.
- To recover from recession. This is Keynsianism. The problem in this case is to easily identify whether the recession is caused by a short term problem, akin to a natural disaster (e.g. a bank crash), or whether there are deeper underlying causes to the recession (e.g. a failure to find a strategy to compete with cheap Asian imports). In the first case, then spending may be justified - however in the second, if a country has serious underlying economic weaknesses, then taking on debt will only delay adjustments that need to be made, and will eventually result in the country digging an ever deeper hole for itself (e.g. Greece). It's often quite difficult for most voters, even those who are more educated, to fully understand the underlying causes of a recession - especially when partisan journalists and politicians frequently do their best to muddy the waters. So in this case, taking on substantial debt is a gamble. The government is effectively saying "I am betting our children's freedom that this recession was only due to a short term weakness". I simply don't trust our politicians to make that kind of bet.
P.S. I expect some Libertarians might want to respond to this post. But I'd rather they didn't, since any debate as to the merits or otherwise of Libertarianism is likely to substantially derail any discussion about the primary subject of this post (government debt). You guys are welcome to make your own topics!
In another time and another place I may have been a conservative. Social stability is important. But our current governments and economic systems are inherently unstable. We must change radically in order to survive.
- By Pants-of-dog
- By Rancid
- By Godstud