Today is already the tomorrow which the bad economist yesterday urged us to ignore. – Hazlitt, Economics in One Lesson
As the Telegraph reported on Friday, the Institute of Economic Affairs "has calculated that the national debt is £4.8 trillion once state and public sector pension liabilities are included, or £78,000 for every person in the UK."
I referred to their paper - A Bankruptcy Foretold - in my Commons speech of 22 June before turning to the Bank for International Settlements' The future of public debt: prospects and implications. That paper calls for "drastic measures" to reduce government liabilities. I said that the implications of our debts were profound and that we risked social catastrophe long before our levels of debt interest reached those projected by the BIS for 2040.
Independently, the theme is gaining currency.
On 11 August, Professor Laurence Kotlikoff of Boston University wrote an article for Bloomberg, U.S. Is Bankrupt and We Don't Even Know It. I recommend the full article, but here is a flavour. He wrote:
[...] the IMF is saying that closing the U.S. fiscal gap, from the revenue side, requires, roughly speaking, an immediate and permanent doubling of our personal-income, corporate and federal taxes as well as the payroll levy set down in the Federal Insurance Contribution Act.
Further, after explaining that the US fiscal gap is more than 15 times the official US debt, he writes:
This is what happens when you run a massive Ponzi scheme for six decades straight, taking ever larger resources from the young and giving them to the old while promising the young their eventual turn at passing the generational buck.
Kotlikoff estimates this Ponzi scheme liability at $202 trillion, which dwarfs the recent US bailouts at $12 trillion. Even the scale of the bailouts is beyond imagination, but stopspendingourfuture.org have produced the following visualisation (and remember this video illustrates about 1/17 of the US problem):
On 21 August, Sean Corrigan, Chief Investment Strategist at Diapason Commodities Management, wrote for The Cobden Centre, saying that Hannibal is at the gates:
Unsound money and unrestrained credit combines far too readily with Man’s inherent disinclination to live off the sweat of his brow to make him an easy mark for every smooth-tongued, silk-suited chancer who promises him a ticket out of the Land of Nod and, once, again, this fatal weakness has led us to a ruin which has engulfed the innocent along with the guilty.
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The first thing to realise is that the caterer’s bill for our Banquet of Fools cannot possibly be paid, that our debts are already too high and our promises cannot be redeemed in full.
Today, Professor Kevin Dowd declares the UK bankrupt. He picks up the IEA's theme:
The Government’s true debt is the present value of all the commitments it has entered into, on the expectation that these commitments will be paid for by future taxpayers. Some prominent examples are the commitments implied by the public sector pension system, the state pension system, the health system and PFI. The costs of these commitments are staggering.
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One recent estimate suggested that a UK citizen born in 2011 will inherit, on birth, a debt of perhaps £200,000, and it could easily be much more.
It is simply inconceivable that debts on this scale will be paid off in full.
Dowd explains the moral as well as fiscal bankruptcy of our present system. He paints a potential future which we would be well-advised to avoid. As I said in my 22 June speech:
If Members on both sides of the House are serious about building a better society, we have no choice but to reform radically the size, scope and role of the state.
David Cameron is correct when he says, "The era of big government has run its course." The questions now are whether the spending review and our subsequent reforms will be bold enough to deal with the world as it is and whether we shall win the argument for change.
