13 thoughts on “Public debt isn’t ‘money for nothing’, but we shouldn’t panic about it

  1. In the light of the threatened global collapse from climate change, the sixth mass extinction, ocean death, sea level rise, limits to growth and other factors, we need to reexamine all of our assumptions about money and debt and what they mean. Proceeding with discussions which assume that money and debt are permanent, necessary, fixed, known and understood features of our political economy is a method doomed to lead only to an intensification of the crises such thinking has generated. It is a case of fiddling with nominal quantities while real systems burn.

    Money is used currently to measure objective things and processes in a non-objective value dimension. This procedure is supposed by people to permit us to manipulate real systems, and it does in a certain manner, but not in any objective, sustainable or equitable way. It leads to absurdities and impossibilities. The impossibilities include the various futures projected by money calculations which can be shown by scientific calculations to be physically impossible futures. A clear example is the projection and requirement (in the current system) for endless growth.

    It has become necessary to imagine and create another system not reliant on money and debt, in their current forms. If we don’t do this we are bound to stay on our current collapse trajectory. “Things never end well. Otherwise, they would never end.” [1] Sustainability is not about about lasting forever. It is about lasting as long as possible. We are not going to last very long at all managing things with markets, money, credits and debts.

    Do I really need to explain why the nominal can’t manage the real?

    1. “Cocktail” – Movie.

  2. I’ll try a more direct and conventional approach. I see no reason for governments to borrow: at least those of G20 membership size and with national fiat currencies. They can tax and print money. They can raise enough money for any undertaking in this manner AND damp private spending sufficiently via taxes and charges, to make the fiscal space for government spending. Heck, they can even do Q.E. and instead of giving that interest-free money to capitalists, they could give it to the people.

    So why maintain the farce that these governments have to borrow? It’s simply a way of assuring capitalists another stream of income and/or another safe place to park money. The spare money capitalists lend to governments could simply have been taxed back. Raise taxes on the super-rich to 95%. Do it yesterday or there will be no tomorrow.

  3. “Increased public debt also makes sense when it is used to finance new investment, including investment in education.” Hmm. Education spending is recurrent. Imagine a steady demographic and economic state. If this is to continue at any level above subsistence, human capital must be constantly renewed by educating the young. Consistent borrowing to finance this is unsustainable, as the debt rises without limit over time. In this world, the old rule of paying for education by current taxes is correct.

    It doesn’t apply nearly as well in a dynamic economy or demography. Some expansion of education has a one-off character (building a network of community colleges, say) and treating it as a capital investment looks sensible.

  4. James, yes I agree that the analysis depends on expanding education. This is an area where the US, once a leader, has fallen short for decades (book aimed mainly at US audience). So, I will link this to expansion.
    Note that since education was very limited in the past, it still makes sense to have debt proportional to the total stock of human capital.

  5. JQ, Why is government debt needed at all? I mean for a stable, developed, middling to large state which taxes adequately and prints / taxes money in a Keynesian counter-cyclical manner. If capitalists have spare money to lend states (in addition to what they already have hidden in tax havens!) surely they simply should have been taxed harder?

  6. JQ: Yup, you can finance a one-off expansion of education by debt, then switch to recurrent funding by PAYGO taxes on the resulting higher income. Works for me.

    “Education was very limited in the past..” I wouldn’t call universal K-12 limited myself, it’s a pillar of the social-democratic state. The big generic problem is that universality falls off a cliff at either end, pre-school and higher-and-further education. You could give all adults lifetime vouchers for three years FTE of further or higher education, sidestepping the class wars over university tuition aid.

    The USA also has a specific and intractable problem of unequal funding for K-12, stemming from decentralisation. Most Americans haven’t got as far as seeing this as a problem.

  7. I think this basic summary of the case for borrowing by the government .might mention the fact that it is not only current interest rates and current economic conditions that bear on the desired level of borrowing but also future possible circumstances. Uncertainty matters – as you well know.

    Debt since the Rudd years has increased by a factor of 11X while debt as a fraction of GDP has almost quadrupled. While this is not a problem in itself it will be a constraint if we encountered another financial crisis of the type experienced in 2008 or the virus crisis that occurred 12 years later. Having low debt allows us to consumption-smooth over such crises with ease. Having high debt is risky if inflation takes off driving higher nominal interest rates which could cause bankruptcies among property investors and a recession.

    We don’t know that future crises will occur, of course, but my guess is that real assets such as property and equities in Australia are overvalued so that a credit crunch is likely if another crisis occurs and/or if interest rates rise. We are not, in fact, investing the huge debts we are accumulating in higher education and even if we were it cannot be assumed we will get much greater productivity from it. The universities have become devalued through thinking that devalues technical education and values instead dumbed-down university courses. Again a guess but I think the returns from much of what is going on at present will be low.

  8. “Anti-Colbert”. What does that mean? I had to look it up. I am pro Stephen Colbert. But maybe anti Jean-Baptiste Colbert. However, I am a protectionist and a proponent of autarky, to workable degrees, not absolute degrees. I don’t fit neatly into any category. I am in parts Keyesian, MMT-ian, Marxian, Veblenian and CasP-ian [1]. The world is complex and no single model I have found explains all its political economy phenomena. I take the parts that make sense to me and then try to put the pieces together in a new integrated model. It’s a jigsaw puzzle.

    It never ceases to amaze me that most people want to work endlessly in a failing paradigm and won’t question it at a fundamental level. I prefer the radical critics of our society and political economy. Capitalism is bound for catastrophic collapse. That much is certain. Continuing to play with the prescriptive Lego Blocks of capitalism which only fit together in certain ways (like “debt” as constructed in capitalism) is the certain path to collapse.

    1. Capital as Power.

  9. maybe this is the place to ask

    why are dividends and rents considered to be earned by the person who receives
    the dole considered to be a bludge by the bludger who receives?

  10. may, dividends and rents earned by property owners may be a payment for opportunity costs on both sides of the transaction.

    Individuals receiving the “dole” are not the owners of a thing it is derived from, its source being considered as taxation. An hypothecation of taxation issue? Or a fundamental problem with the nature of the State justified and maintained by anachronistic religious principles still very much present in law?.

  11. may,

    Your question is eminently reasonable. My answer is “The bias of capitalist ideology.” Property owners who rent their property or gain dividends from it (even as shares) are Rentiers and earn technically under the rules of capitalism but arguably do not earn morally.

    “Rentier (property owner) [fr], someone whose income derives from rents, interest on investments, and the like.

    Rentier capitalism, economic practices of gaining profit by monopolizing access to property.” – Wikipedia.

    These are reasonable definitions. There is no presumption in these definitions that the incomes or profits are earned or unearned. In turn “earned” can mean “earned from ownership” or “earned from effort”. In my lexicon, incomes earned from mere ownership are not morally earned. Things earned from fair effort for fair reward have at least some claim to being morally earned.

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