I’m in broad agreement with this piece by Chris Dillow.
Jonathan Calder asks a good question: why has political radicalism become synonymous with wanting to see a permanent and massive public debt?
Let me deepen the puzzle. In three ways, the left should be more concerned about government debt than many on the right:
1. The left tends to be more sceptical about the rationality of financial markets. They should therefore take less comfort in the fact that bond yields are low, for fear that market opinion might turn quickly. This argues for cutting public spending in a considered, orderly way, for fear of having to make emergency cuts if sentiment does change. (Of course, governments could monetise borrowing rather than tap bond markets, but the costs and benefits of doing this shouldn’t be a left-right issue).
2. Government debt is analogous to climate change – both are burdens we impose upon future generations. If you’re concerned about climate change – and the left tends to be more so than many on the right – then you should also be concerned about government debt*.
3. Big government is no friend of the working class. What’s wrong with cutting public debt if it means ending the subsidy to arms companies that is military procurement? Why not slash spending on an organization that seems to have degenerated into a gang of thugs? Why not nationalize the banks and use some of their profits to reduce government debt?
On these grounds, we’d expect the many on the left to want to reduce government debt. So why aren’t they?
I think it’s because these factors are outweighed by another. What distinguishes left from right is that the left is more sceptical of the right about the self-righting capacity of capitalism. The left therefore thinks that cuts in public spending will not crowd in exports or business investment, but instead depress the economy, which will hurt workers disproportionately.
But this raises a question. What if we had more adequate insurance mechanisms – either more generous unemployment benefits or Shiller-style macro markets – which better cushioned workers from recession? Would some on the left then be less supportive of public debt, because the weight of factors 1-3 would increase relative to the costs of jeopardising economic growth?
* Of course, it could be that climate change is a left-right issue because the left believes capitalism must have all sorts of bad effects, whilst the right believes this is impossible. But leave this aside.
But he’s arguing the case from a British point of view. Few countries have been through the idiocy of our populist fiscal rectitude, and so in our case, I can be very sympathetic to Chris’s arguments – it is indeed odd that the left is associated with fondness for public debt when as Milton Friedman points out, public debt in sufficient quantities is one sure way to ensure small government (for him this was a debating point against the left, just as his arguments against realism in economic modelling was a rhetorical move in defending perfect competition – in both cases his disciples have taken his insights rather further than he was intending, the Republicans making straight for small government by jacking up debt as fast as they can – when they’re in office you understand, when they’re opponent is in office the crazy deficit spending just has to stop! – the fresh water economists assuming any damn thing they like (the Great Depression was a spontaneous holiday? – no problem). But I digress. . . .
The thing is, as I’ve argued ad nauseam here and elsewhere general dispositions towards more or less debt are pretty stupid – like general dispositions to higher or lower exchange rates. It depends on the circumstances, and that’s why we need institutional development like more official independent advice to governments on the fiscal stance, and the quality and cost effectiveness of its capital spending.