[OPE] Naill Ferguson's fiscal scare

An Empire at Risk
Niall Ferguson
Newsweek Nov 28, 2009

(...) if the United States succumbs to a fiscal crisis, as an increasing
number of economic experts fear it may, then the entire balance of global
economic power could shift. (...) there is no end in sight to the borrowing
binge. Unless entitlements are cut or taxes are raised, there will never be
another balanced budget. Let's assume I live another 30 years and follow my
grandfathers to the grave at about 75. By 2039, when I shuffle off this
mortal coil, the federal debt held by the public will have reached 91
percent of GDP, according to the CBO's extended baseline projections.
Nothing to worry about, retort -deficit-loving economists like Paul Krugman.
In 1945, the figure was 113 percent. (...) under the CBO's alternative
(i.e., more pessimistic) fiscal scenario, the debt could hit 215 percent [of
GDP] by 2039. That's right: more than double the annual output of the entire
U.S. economy. (...) http://www.newsweek.com/id/224694/page/1

Five points could be made:

(1) A public debt ratio of 91% of GDP is comparatively large,
internationally, but not spectacular. Greece has that kind of debt level
right now. Japan has a public debt in excess of 170% of GDP.

(2) Comparing the public debt to the value of net output is rather
inappropriate - the debt has to be compared to the assets owned, and what is
critical is the fraction of current income that has to be paid to service
the debt. It is moreover meaningless to consider the public debt separately
from private debt; if the public debt liability is reduced, the private debt
just increases. All that happens is that the debt is shifted around from
public owners to private owners - of course, private owners would like to
make money from debt liabilities. So all that Niall is saying there, is that
he would prefer the people to pay money to private creditors, rather than
pay taxes. But that just makes life even more expensive for ordinary people,
who rely on collective provisions and social insurance.

(3) The US governmental authorities together own an enormous amount of
assets, the value of which is difficult to know but just physical assets and
land would I think be in the region of $16 trillion (about one-third of
total household net worth) - the federal government owns one-third of all US
land. In addition the state owns many services and enterprises. If debt
becomes a problem, they actually have quite a lot that they can sell off.

(4) The main problem of the US is not debt as such, but the enormity of
socio-economic inequality. If one-third of the working-age population earns
only a pittance, this costs the state money, and low-wage people necessarily
carry debt, while they can't pay much tax. But in fact the largest chunk of
private debt is held by wealthy people, who have the collateral to borrow
large. The more capital you own, the more capital you can borrow. "Average
household debt" figures are rather meaningless in this sense and distort the
picture.

(5) The American big bourgeoisie is throughly internationalized and doesn't
care too much about the state's fiscal problems except insofar as it affects
them financially. A large chunk of their wealth and income is laundered
through various tax havens. They cannot really agree among themselves about
what the state is for.

So anyway really what Niall is doing, is that he is projecting the problems
of America's spend-up-large-with-borrowed-money bourgeoisie onto the working
population, implying that workers should tighten their belts and forego
state services so that Unca Scrooge can have a better ride.

Debt is the biggest business in town, and American capitalists want to have
it both ways: to make more money from debt liabilities, while forcing down
their labour costs. Point there is that this gambit is in aggregate
unsustainable. But reducing public expenditure actually solves very little -
that just means all social problems and infrastructural problems get worse.
The presumption is that private services would substitute for public
services, but there is little sign of that happening - if they do, people
face extra charges - and anyway capitalists don't usually make money from
organising anti-poverty services.

You also have to remember that public expenditure would never have been
allowed to increase like it has done in the last half century, unless
business people profited from it through government contracts to the private
sector, which in the US currently amount to about $425 billion per year
http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_pub_contracting.pdf
If you cut public expenditure, then many government-funded activities simply
will not occur, because the private sector will not fund them.

The real crisis is not the fiscal crisis, but a political crisis about what
the state is for, what its purpose is or should be. Should it serve (big)
business, or should it serve the people?

Jurriaan

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Received on Sun Nov 29 19:40:13 2009