Deficit Spending Is a Moral Issue
In a new report for the TaxPayers' Alliance in the UK, Ben Ramanauskas makes an important point: deficit spending and government debt are moral issues, and not just matters for arcane economic theory. That is, when current voters side with current politicians to drive a government deeper into debt, they hand down a big fat bill to future taxpayers and citizens who have no say in the matter right now:
There are significant moral implications of having a large national debt. Money which is borrowed today will have to be paid back at some point in the future, perhaps by people who are yet to be born. As a result of the profligacy of current governments, a burden will be placed on future generations who will have to pay higher taxes and have less money to spend on essential services. It is one of the defining principles of Parliamentary Supremacy that Parliament cannot bind its successors. The reasoning behind this is that it would be an affront to democracy to allow future generations to be bound by previous generations.However, by having such a high national debt, the government binds future generations and curtails their freedom to choose by ensuring that they will have to spend a significant proportion of their money servicing the debt which also places restrictions on what they can spend their money on, and will also have implications for levels of taxation.
Therefore, increased borrowing will result in a burden being placed on future generations. A high national debt can have numerous negative consequences. For example, a high level of debt can lead to an increase in the yields paid on UK sovereign bonds. This is because if investors believed that the UK’s national debt was so high that it would be at risk of defaulting on its debt or that the country would inflate them away, they would need to be incentivised to purchase the UK’s gilts by high yields. Very high national debt can have a negative impact on economic growth. For example, borrowing can crowd out other investment as investors loan money to the government, rather than to the private sector. Nations typically see growth slow when their debt levels reach 90 percent of GDP, with the median growth rate falling by 1 percent and average growth falling by even more.
Moreover, research focussing on the US has found that raising the Federal deficit has an adverse effect on the economy by reducing private sector investment, economic growth, and employment. As mentioned above, government debt has to be paid. Furthermore, interest payments have to be paid on the debt. This, therefore, places restrictions on government budgets and so diminishes their ability to be able to spend money on essential services. Moreover, in order to repay and service the debt, governments tend to either raise taxes or decide not to lower them. An in depth explanation of the folly of increasing taxes and the benefits associated with tax cuts goes beyond the scope of this paper, and the TaxPayers’ Alliance has written extensively on this topic. However, the evidence is clear that tax increases tend to be harmful for the economy, whereas tax cuts tend to have a positive impact.
Although it may seem an attractive policy to borrow money in order to fund government spending, this is not a sensible approach. Although interest rates are historically low, government borrowing is not free and has to be funded. Furthermore, although there have been other periods in its history when the UK has had a high level of national debt, the socio-economic situation is very different from those periods. It should also be remembered that not only has this money got to eventually be paid back, but that also interest has to be paid on the debt too.
These interest payments represent a significant proportion of government expenditure, and is money which could have been spent on essential public services such as healthcare, education, or provision for the elderly. Moreover, proponents of the idea that the government should take advantage of low interest rates by borrowing more are correct to point out that rates are historically low, but that is precisely the point. They are historically low, and so one should not expect them to remain as such over the coming years and decades. Furthermore, we have seen that even a small increase in rates of one per cent, increases the national debt as a percentage of GDP significantly in the long term. Furthermore, there are serious economic and moral ramifications to increasing national debt. For example, a high national debt can seriously hamper economic growth. Moreover, increasing the national debt places a burden on future generations who will have to pay it back.
As Ramanauskas notes, it's not just a matter of higher bills for government services either. All that extra spending discourages private-sector investment as well, creating a more run-down, more capital-impoverished version of the future than would have otherwise been the case.
In America, at least, this is the legacy of the current Baby Boomer generation, and their parents. They want their Medicare, and their highly-paid government jobs, and federally-subsidized roads, and endless wars fought in the far reaches of the world. But their children and grandchildren will be paying the bill.