Wednesday, August 11, 2010

Public debt and the left

Stumbling and Mumbling picks up and runs with a question I asked recently: Why has political radicalism become synonymous with wanting to see a permanent and massive public debt?


Tristan said...

This is a really good question.

Perhaps such radicals now view the state as necessary to achieve their aims and so accept the debt as necessary?

I'm glad to say some radicals do recognise the important public services whilst viewing the state as another capitalist employer. An even more powerful one given the options open to the state to legislate against workers.

Joe Otten said...

But Tristan, the state being necessary doesn't make debt, but tax, necessary.

Funding something necessary by borrowing is hardly a way of securing it.

Alex Sabine said...

Indeed, Joe - and in theory there is no necessary correlation between the high spending favoured by social democrats and high borrowing (hence some Lib Dems like Geoffrey Payne seem to think the problem with Gordon Brown's fiscal policy was that he didn't raise tax enough...).

But in practice there does seem to be a link between spending binges and high deficits, certainly in the UK experience. I suspect this is because governments of the left know there is a constraint in how much people are willing to pay in taxes - but they are unwilling to cut their cloth accordingly and so fund the additional spending they want but can't finance by borrowing or (in extremis) debasing the currency.

In the UK example Brown not only did this during years of buoyant economic growth from 2000-07, but even the tax revenue he did raise was artificially boosted by the unsustainable asset price bubble - so the real structural deficit was considerably larger than the 'mere' 2.5% of GDP or so it appeared to be going into the recession in 2008.

In the medium to long run this kind of lax fiscal policy isn't 'progressive', of course: it diverts money away from productive public spending into debt servicing and eventually it forces governments to cut even some desirable things as well as the many unnecessary or undesirable things they do.