Paul Krugman recently provided an excellent response to that line of thinking in his New York Times column. It wasn’t aimed at Bruton, but was a general response to that line of thinking (and we have a lot of political leaders here in the USA who totally approve of it). Here’s what I find to be the most relevant passage:
if you look at United States history since World War II, you find that of the 10 presidents who preceded Barack Obama, seven left office with a debt ratio lower than when they came in. Who were the three exceptions? Ronald Reagan and the two George Bushes. So debt increases that didn’t arise either from war or from extraordinary financial crisis are entirely associated with hard-line conservative governments.
And there’s a reason for that association: U.S. conservatives have long followed a strategy of “starving the beast,” slashing taxes so as to deprive the government of the revenue it needs to pay for popular programs.
The funny thing is that right now these same hard-line conservatives declare that we must not run deficits in times of economic crisis. Why? Because, they say, politicians won’t do the right thing and pay down the debt in good times. And who are these irresponsible politicians they’re talking about? Why, themselves.
To me, it sounds like a fiscal version of the classic definition of chutzpah — namely, killing your parents, then demanding sympathy because you’re an orphan. Here we have conservatives telling us that we must tighten our belts despite mass unemployment, because otherwise future conservatives will keep running deficits once times improve.
Krugman’s column is carried by the Irish Times on the front page of its business supplement, below the fold, so I read that ;) I thought the chutzpah bit was particularly good.
It’s quite likely Bruton saw that too - I suppose the difference is that every Irish government since the late 1980s (the last time Ireland was in a serious recession) left office with a lower debt-to-GDP ratio than it started with; including his own government between 1994 and 1997 which lowered the ratio from 88.4% to 73.4% (see). Presumably he’s aware of that, which is why he referred to spending rather than paying down debt (or its relative erosion by growth).
But I also think it’s because the idea of ‘starving the beast’ hasn’t, at least up until now, had any currency in Ireland - even on the right. Without a large military and with historic economic underdevelopment, there was no ‘beast’ until the boom years allowed Ireland to do some catching up compared to European levels of public spending, although the boom-time economics also allowed the later governments to do so while keeping the tax take (as a percentage of GDP) below the European average, closer to the US level. And we did this while running budget surpluses and reducing our debt levels, conditions Europe sees as evidence of good fiscal housekeeping.
This essay makes interesting reading in light of Ireland’s recent ‘deal’ on the promissory notes connected with the failed Anglo Irish bank. A deal which, incidentally, seems to be solely of domestic interest unlike previous, more negative events in Ireland’s recent economic past. Here, the State was represented by a government which won election in a large part on a promise to ‘do a deal’ on the country’s bank debts, chief among that being ‘Anglo’, latterly transformed into the Irish Bank Resolution Corporation; which, overnight, the government pushed through legislation to liquidate while transferring all its loans and debts to another state body, the National Asset Management Agency, which already houses billions in toxic property loans. The ultimate aim being to allow a hugely financially and politically costly ‘promissory note’ - a debt incurred for ‘emergency liquidity assistance’ used to keep the insolvent Anglo Irish bank from being the first in Europe to fail, and being paid back at an economically crippling rate of €3.1 billion a year for the next ten years and at a lower rate for some years thereafter - to be replaced with a more ‘reasonable’ and (in theory) sustainable debt. The European Central Bank has so far merely said that it has ‘unanimously taken note’ of ‘Ireland’s operation’, a phrase interpreted as saying that it doesn’t object to but clearly wants to stand off from the effective - but limited - restructuring of the debt which the Irish government proposes: the details are as yet opaque but it seems to be a series of bonds stretching out up to 2053, on which interest only (as is the norm) will be paid.
There is no way this is a ‘good’ deal outside of the extremely limited political circumstances and the pressure exerted by the existing debt burden which means that any reduction is undoubtedly a ‘good’ thing. In the short term it is being suggested that we will be paying a billion euro less per year in relation to servicing this debt - which still means over €2 billion more than those opposed to the assumption of private banking debts by the state think we should pay, and which still represents a huge economic burden. The total debt remains the same, in fact it is increased (in nominal terms) by lengthening out the period of interest payments, but this will be eroded (in real terms) by inflation and economic growth - even if we’re short of both currently - meaning the argument that we’re shifting the burden onto future generations is rather hollow, since it progressively decreases with time. (For example, if inflation and growth together averaged 5% each year… admittedly optimistic from the current perspective… then after 40 years the overall sum would equal 14% of its original real value [1/1.05 ^ 40 = 0.142], equivalent to single-figure billions in today’s money. Albeit since we are paying the interest and not the principal, each preceding payment will cost us proportionately more in real terms.)
Those on the left (and the right) who claim that the debt is not ours, as a democracy in a world where capitalists are supposed to assume their own risks, ignore the fact that it has been made ours. In part by the actions of our previous government, in part by the governing fiscal orthodoxy of Europe and the European Central bank:
"Lazzarato’s characterization of neoliberalism as a totalizing, authoritarian politics of control leaves you wondering whether debt isn’t an experiment designed to test sociologist Barrington Moore’s thesis, “No bourgeoisie, no democracy” — especially when you consider that debt functions by placing liens on property, a defining bourgeoisie mainstay. Though Lazzarato admits that debt works “as a ‘capture,’ ‘predation,’ and ‘extraction’ machine on the whole of society,” it also works certain spiritual effects, functioning “as a mechanism for the production and ‘government’ of collective and individual subjectivities.” Neoliberal debt discourse rests on a deep entanglement of economic reasoning, moral suasion, and established social convention.”
Such control reminds me of the Magdalen laundries, which forced their inmates - as ‘penitents’ - to repay their moral debt, through unpaid work, to a society which had forced them out and which relied on such institutions to function as a Catholic whole. The alternative in each case naturally threatens the foundations of the society (such as our taking on debt, to drive growth, to erode debt):
"Not only must all existing debt be annulled, but debt itself must be exposed for what it is, namely, “not an economic problem but an apparatus of power designed not only to impoverish … but to bring about catastrophe,” and tossed into the dustbin of history."
A debt-free world would have to be one which eradicated Keynesianism, and most forms of doing business under capitalism. But neoliberalism has already part-accomplished the former, by restricting the extent to which states can intervene in the markets to stimulate growth; and has also started to achieve the latter, in that what new debt the state has taken on (Ireland above all) has been in relation to banks, thus disrupting the expected division of risks and losses between private investors. Debt repudiation is an anti-neoliberal fantasy, which is in a way merely a mirror of what neoliberalism has really done to the world. Debt restructuring, as Ireland has belatedly entered into, is a cosmetic rearrangement and marginal reduction of these economic burdens. Somewhere in between there must be a politically achievable revolt against the structures of control in our society… mustn’t there?