The recent US government shut down echoes the ongoing political crisis in France over its Parliament’s inability to agree on a budget for the country as just the latest manifestations of a fundamental problem with government, governability, and the endemic short-termism of modern western culture. Virtually every major Western government has been facing similar crises over the past decade. Our own situation here in the US is worse, even if we’re more devious in our means of ducking the problem.
This chart gives a rough picture of how public debt levels in the major Western countries (US, Japan, Germany, France, Britain, Italy, Canada) have changed since the turn of the 20C. If you “normalize” out the spikes caused by WWI and WWII, you can see that debt levels increased only marginally across the 20C. This is remarkable in itself given the significant changes in the nature and scope of governmental activities (esp. the rise of the “welfare state”) during that period.
Since then, things have gotten much worse. It’s not just the demands of the particular challenges of the Great Recession (fifteen years ago) or of COVID (five years ago), although they have certainly contributed to the problem. Rather, it reflects some real problems in terms of how governments raise and spend money. There are several (overlapping) contributing factors:
* Political short-termism – Politicians have rarely met a bullet they were willing to bite. No one wants to raise taxes, everybody wants to feed at the government trough. The implications of not investing today will be the problems of the next generation (by which time the current gang will be retired and forgotten, but in the meantime, they will have sipped and supped with power).
* Intergenerational theft – This is often unintentional, but no less damaging. The responsibility (blame?) lies most heavily on the Boomer generation who grew up in an era of expanding governmental support programs (health care and pensions in particular) which had been funded by the expanding economies of the late 20C. The burden falls on the younger, less powerful (and less likely to vote) generations. Now, with demographic changes, there are relatively fewer younger folks and the older recipients won’t let go of their entitlements.
* Bad accounting -- Dodgy calculations (retirement, health care, inflation), and a refusal to save up for infrastructure depreciation will eventually come due.
* Oligarchical domination of governments – This shows up principally in innumerable tax-reduction schemes and regressive structures that—while rationalized by all sorts of (well-lobbied) arguments about investment and property “rights”—mainly benefit the top few percent of the wealthy in each country who have disproportionate political power.
* Bourgeois entitlements – This is another way of characterizing the benefit programs and tax schemes (“middle class” tax breaks) that are embedded in the system and are accordingly difficult to retrieve without a great “hue-and-cry” about embedded expectations. As Ronald Reagan said of the Panama Canal: “We stole it fair and square.”
Of course, the problem of government overspending is hardly a new one. History is littered with the bankruptcies of great powers and the French inability to come to terms with their debt accumulation was a significant cause of the crisis that led to the Great Revolution of 1789. Spain and France (the leading powers of the 16-18C) each defaulted more than a half-dozen times during that period. Indeed, one of the key aspects of the rise of British power to replace them during the 18C was its ability to manage its debt (both in terms of spending and financing). The pattern waned in the 19C, although lesser powers (e.g. Portugal and especially Argentina (much in the news lately, too) became notoriously unreliable. In the 20C, there were fewer formal defaults (if you leave aside the wholesale flushing out of the finances of Russia by the new Soviet regime in 1918 and Germany, Italy, and Japan in the aftermath of WWII).
Despite the pie-in-the-sky claims of an AI-generated spurt of productivity, the situation going forward is actually pretty bleak. Aging populations will suck up lots of cash for retirement and health care. Roads and bridges will need to be repaired. A less stable/secure world will demand more expenditures for military modernization. Not to mention climate repair/mitigation. Fewer workers per retiree (especially as we slash immigration) means that we’re running out of places to find cash for the government costs.
The likely outcome will be a combination of politically unpalatable steps. There will be much screaming and hand-wringing, but (even in this age of mythical thinking) numbers need to add up. Capping or cutting social benefits, increasing taxes, and, seemingly inevitably, an extended bout of non-trivial inflation, lie ahead. Much of this will cut along class lines, leading to a significant economic “populism” movement. We’re seeing the first steps along those lines now, the recent tax and expenditure moves will soon (within the next two years) start to bite. So, we will have an early indicator of whether those adversely affected will mobilize to protect the social safety net by demanding an increase in taxes. Everyone will be affected by inflation, although those most well off will face the biggest impact on the relative value of their accumulated wealth.
Politically, this won’t be pretty. The desultory skirmishing over the government shut down will seem trivial. Lots of folks will be getting pretty angry and increasing numbers will radicalize. The hollowing out of the middle-class will make the premises of democracy less tenable. The combination will make the fears of political philosophers from Plato and Aristotle onwards—the perennial tension between the masses and the well-off--more tangible. It will be remarkable if the body politic can come through this with a new balance of power, money, and justice.
Maybe we should require all elected officials to pass mathematics and accounting exams and cut their pay and benefits if their numbers don’t add up.
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