It’s always amazing how the intellectual atmosphere over on the left can hold two entirely contradictory ideas at the same time. Believe in them both so much that they’ll advocate policies to solve both without even acknowledging the conflict. So it is with government debt. Apparently governments can just borrow as much as they like and it’ll be fine so spend, spend, spend. At the very same time we’re told that some 100 countries in the world are going bust and we must forgive their debts.
It’s not really possible that both are true at the same time, is it? But that’s where we are with the current insistences about economies, that both are indeed true.
For us, the eurozone, the US and so on we are told that government must spend at present. This might even be right and would be if government could be relied upon to deploy resources usefully – decide for yourselves how forlorn that hope is. Governments can borrow to do so and if that’s difficult they can just print the money. The printing bringing with it the risk of future inflation but that’s OK, those QE bonds can just be sold into the market to reduce inflation. Or, perhaps, taxes can rise to reduce the inflation. The end result here being that as a result of the spending now we’re going to have higher taxation in the future – either to stop the inflation or to pay back the bonds.
But, and it’s a heckofabut, the insistence is that governments simply cannot go bust. There is always the money to pay those debts so why not do it? To which the traditional response is sure, but Venezuela, Zimbabwe….the re-response being they’re special cases, oh yes, definitely.
OK, then we have Joe Stiglitz:
A global debt crisis is looming – how can we prevent it?
There is an urgent need for wide-ranging debt relief in the midst of the coronavirus pandemic
How can this be?
While the Covid-19 pandemic rages, more than 100 low- and middle-income countries will still have to pay a combined $130bn in debt service this year – around half of which is owed to private creditors. With much economic activity suspended and fiscal revenues in free fall, many countries will be forced to default.
But governments can’t go bust and yet we’ve a majority of governments on the planet going bust? So much so that we’ve got to bail them out, presumably by our governments borrowing more?
Which is that interesting commentary on cognitive dissonance on the left, isn’t it? We should borrow massively ‘coz we’re different but they are bust because they did so ‘coz they’re different. If we didn’t know better we’d accuse them of racism for insisting that foreigners can’t handle money like wot we edumacated people can.
Of course there is an actual and correct answer to all of this. Those 100 foreign governments borrowed lots, yes, and they’re going bust because they misdeployed that cash and those economic assets they bought with it. Our own governments are going to…….well, given that the majority of governments on the planet ran into trouble with this economic efficiency thing they’re going to what? Quite, liberally sprinkle it up the wall of that urinal, aren’t they?