The “Leaving Debt For Future Generations” Fallacy

How many times in the last five years or so have we heard the popular refrain “We mustn’t leave debt for our children and grandchildren”? Too many to count. The Tories and their allies in power, the Lib Dems, use it as a discourse-killer; a means of defending their absurd austerity measures and to silence their critics. However, this notion that if the government should borrow money to invest in public services or infrastructure, then this debt will be passed on to our children and grandchildren and so on is nothing but bunkum. It’s little more than a form of emotional blackmail to convince gullible voters to cast their ballots for the dismal Tory Party,  whose profligacy in government would make the most financially incontinent blush with embarrassment.

Governments always borrow money. If they didn’t, it would be unusual. The Lend-Lease deal that was negotiated between the Attlee government and the United States was paid off in 2000.  First World War debts were finally paid off a year ago. I wonder though, did any of you actually notice this debt dragging on you as members of the successor generations? No? I didn’t either. The South Sea Bubble, which happened in 1720 incurred massive debts. The Battle of Waterloo sucked in money like a black hole absorbs light. Those debts are still outstanding. It’s funny how none of the Tories or Lib Dems ever mention this. Instead of avoiding bubbles, the Tories and the Lib Dems actually did their best to stimulate them. Help to Buy has the potential to become the British equivalent of Fanny Mae and Freddie Mac. The recent attempt to revive Right to Buy, which has contributed to the current housing shortage, is another economically incompetent manoeuvre.

Truth be told, individuals don’t pay back these historic debts because they’re held in bonds that were issued at the time of borrowing. The wealthy people who lent money to the government demand their interest but, in effect, they’re a form of savings. So what about the budget deficit then? Well, that isn’t helped by the fact that the last government failed to collect enough in tax revenue because they gave tax cuts to their rich friends, while hammering those who need to work more than one job just to have an extra couple of quid a week. Yes, they told you that those earning less than £10,000 a year would be taken out of tax but those people often have no choice but to take another job. So they lied to you.

Governments can raise money in three ways: taxation,  borrowing (at preferential rates of interests) or by issuing bonds. The latter is often used for funding wars, while taxation is used for such things as social security. The government will often borrow money to service public sector needs (this used to be known as the public sector borrowing requirement or PSBR) or for infrastructure projects. PSBR is the old way of referring to the budget deficit. The government can always go into debt for wars and other military adventures but they will never claim that those particular debts will “be passed on to future generations”. Yet they will make that same claim when it comes to much-needed investment or paying out social security benefits. Such staggering hypocrisy should not be allowed to go unchallenged.

It’s The People’s Money blog had this to say about the “leaving debt for future generations” fallacy.

The real debt we leave to our children is the state of the environment and the nation’s resources they inherit from us, along with the lack of investments we could and should have made in their future. It is never about the record of government money on an accounting ledger.

The notion that the national debt is passed on to “our children and grandchildren” has its origins in Thatcher’s household finances analogy fallacy. The Center for Economic and Policy Research, a US-based research outfit claims:

Politicians, especially those who want to cut programs like Social Security and Medicare, are fond of telling people that our children and grandchildren will pay the national debt. That one may sell well with focus groups, but it is complete nonsense. Unfortunately, Eduardo Porter repeats this line in his column today.

A moment’s reflection shows why the debt is not a measure of inter-generational equity. At some point everyone alive today will be dead. At that point, the bonds that comprise the debt will be held entirely by our children or grandchildren. The debt will be an asset for the members of future generations that hold these bonds. This can raise distributional issues within a generation. For example, if Bill Gates’ grandchildren own the entire U.S. debt there will be important within generation distributional consequences, however this says nothing about inter-generational distribution.

In other words, the debt actually becomes a form of savings not a crippling burden as the free market cultists in the Conservative and Liberal Democratic parties would have us believe.

When a government, like the last coalition government, keeps cutting taxes for the rich, it leaves a massive hole in the government finances. What the coalition has done is to pass on debts to those who can least afford them, while letting bankers and other parasites off the hook. The outgoing Blair-Brown government also dumped debts on unemployed by abolishing the social fund grants and replacing them with ‘budgeting’ and ‘crisis’ loans. If anyone is being saddled with unsustainable levels of debt, it’s the poor who are living at this moment in time. They’re in debt bondage and they’ve effectively become serfs in our late capitalist, post-Fordist economies. Why? Because the bullies who govern this country know they can’t fight back, because they lack the economic and political power to do so. When George Osborne stands before us and claims “it would be a dereliction of our duty to future generations”, he’s relying on widespread ignorance of state finances to push this mumbo-jumbo. Don’t fall for it.

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5 Comments

Filed under Conservative Party, General Election 2015, Government & politics, Liberal Democrats, Public spending

5 responses to “The “Leaving Debt For Future Generations” Fallacy

  1. Governments should spend and look after their people and austerity (effectively harming the vulnerable for the crimes of the bankers) is a moral crime.

    Debt, however, is debt. The fact that we are still paying money over the Napoleonic war is also criminal. I did not incur this debt, neither did you, nor did our great grand parents, yet it is taken out of our taxes instead of being used for actual productive uses.

    Our capitalist society (largely based upon the one in need of money incurring debt and paying interest to the one who already has plenty) is a society where the possession of wealth is concentrated into the hands of the possessors of capital whilst the providers of labour are going to increasingly finding that their labour is undervalued and underpaid.

    One of the things that Marx got right was the understanding that “Capital is dead labor, which, vampire-like, lives only by sucking living labor, and lives the more, the more labor it sucks.” This reality is why the poor are getting less of the pie and the rich more of it as time passes.

  2. Pingback: GE15 Election Myths and Misinformation | Questions and Reflections

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