What to do about debt
Ian on Sunday
For some reason in recent years the whole world seems to have woken up to the importance of 'fiscal prudence' in running a nation's affairs. It is a mystery. Ordinary men and women of good sense have always known that profligacy leads sooner or later to misery. Charles Dickens puts the matter perfectly into the mouth of Mr Micawber, one of his great fictional characters: "Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery." It applies to nations also - certainly to small developing nations like ours. Get the country into deep debt, waste money, run big deficits in the public accounts, indulge in overmanning and lax financial controls in the state sector - and, sure enough, misery will be the lot of the unfortunate and helpless citizens, though not at all necessarily the ruling establishment - of the country at fault. Debt grows, inflation takes hold, the currency devalues - with the inevitable result that standards of living fall drastically to reflect the nation's ruined state. If a nation can't make ends meet soon enough its ordinary citizens can't make ends meet. The IMF takes a lot of blame because, after it is called in to bail out and supervise, it is often associated with a drastic fall in standards of living in poor countries - and the IMF has indeed been heavy-handed in applying rule-of-thumb 'conditionalities' which are all too frequently inappropriate to individual countries' circumstances. But the truth is that more often than not the fall in living standards really had nothing to do with the IMF and everything to do with the nation's ruined state which occasioned the IMF being summoned to the rescue. And it is worth emphasising, until a nation's solvency is restored and its credit secured it cannot possibly repair, replace or modernise the basic infrastructure of the country to anything like the extent needed. Leaders in small, poor states - in opposition as well as government - should listen to the words of a great West Indian, born in Nevis, who was also one of the founding fathers of the United States. In his Report on a Plan for the Further Support of Public Credit, dated January 6th 1795, Alexander Hamilton perceived a universal truth: "To extinguish a Debt which exists and to avoid contracting more are ideas almost always favoured by public feeling and opinion, but to pay Taxes for the one or the other purpose, which are the only means of avoiding the evil, is always more or less unpopular. These contradictions are in human nature. And the lot of a Country would be enviable indeed, in which there were not always men ready to turn them to the account of their own popularity or to make other sinister account. "Hence it is no uncommon spectacle to see the same men Clamouring for Occasions of expense, when they happen to be in unison with the present humour of the community, whether well or ill directed, declaiming against a Public Debt, and for the reduction of it as an abstract thesis; yet vehement against any plan of taxation which is proposed to discharge old debts, or to avoid new by defraying the expense of exigencies as they emerge. "The consequence is, that the Public Debt swells 'till its magnitude becomes enormous, and the Burthens of the people gradually increase 'till their weight becomes intolerable. Of such a state of things great disorders in the whole political economy, convulsions and revolutions of Government are a Natural offspring. [My previous report] suggests the Idea of 'incorporating as a fundamental maxim in the SYSTEM of PUBLIC CREDIT of the United States, that the creation of Debt should always be accompanied with the means of its extinguishment - that this is the true secret for rendering public credit immortal and that it is difficult to conceive a situation in which there may not be an adherence to the Maxim." Let all governments - and oppositions - write these words in their manifestos in letters one foot high: "The creation of debt should always be accompanied with the means of its extinguishment." Alas, it is a maxim unlikely to find much favour in an election year.
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