One of the new Commandments is “Thou shalt not accumulate public debts that have to paid off by future generations”. To which I answer, why not? Like most such axioms, any serious analysis soon shows that the Commandment isn’t quite as absolute, or a useful guide to action, as it first appears.
The Commandment is set out quite explicitly in the Spending Review Framework:
“Public borrowing is only taxation deferred, and it would be irresponsible to accumulate substantial debts that would have to be paid off by subsequent generations in decades to come.” (Page 3)
In 2006 Britain finished paying off the debts accumulated through ‘Lend-Lease’ that enabled us to buy armaments from the USA during World War Two. I don’t know anyone who says – ‘I think we should have surrendered to Hitler because we shouldn’t be accumulating substantial debts to pass on to subsequent generations’.
This sounds like an extreme example, but think about it: what it really says is it depends on the benefits whether it’s worth borrowing long-term money. The point of this example is that the children and grand-children who carried on paying off the debt also benefitted from the original spending – or does anyone really think living under the Third Reich would be better?
This principle can easily be extended to some other obvious areas of public spending – schools, hospitals, roads, bridges and other infrastructure built today might be expected to last for decades and our children and grand-children will benefit from them, so what’s so bad about asking them to contribute something to the costs of these benefits?
The current British fiscal problem was largely created not by profligate current spending but by a one-off economic crisis caused by the Big Market, not the Big State. True, a structural deficit of about 3% of GDP opened up in about 2002-03 and continued until the crisis hit, when it suddenly leapt to 11% (if you don’t believe it, the Spending Review document helpfully provides a diagram showing precisely this).
The structural deficit between 2002 and 2007 was undoubtedly a mistake, but it was then still manageable. It is what has happened since that has elevated it to such a massive issue.
The size of the problem now is about sustaining spending on things like health, education, transport and other areas that help the next generation as much as this. It also involved interventions the prevented a recession turning into a depression which would have done untold log-term damage to Britain’s economy. Would future generations really have said, ‘it’s OK guys, we understand why you let the country collapse in 2008 – you didn’t want to burden us with debts.’
None of this is to suggest that all long-term debt is a good idea – clearly it isn’t and we need to make careful analysis of what is, and what is not, justified. To put it in personal terms – if your parents passed on to you a large house and small mortgage you probably wouldn’t mind too much, but if they passed on a small mortgage and no house because they’d spend all the money partying you’d be a bit miffed.
So, can we have a bit less of the simplistic Victorian morality tales about public debt and a bit more sensible, grown-up, discussion? That’s a rhetorical question to which I know the probable answer, unfortunately.