Thursday, May 10, 2012

Green-Free Marketeer debate: the legacy of debt

Continuing the Green/FreeMarket Fundamentalism debate, Mark Littlewood writes:

I often make the (ever so slightly flippant) remark that if someone is at all concerned about the environmental legacy we are leaving for our children and grandchildren, they should be absolutely apoplectic about the economic legacy we are leaving them in terms of the public finances.

Estimates vary, but once we factor in liabilities such as public sector pensions and the like, the real national debt is around £5 trillion (or about £80,000 for every man, woman and child). This is a colossal burden being shuffled on to the next generation - and the unborn and unconceived - for precious little reward. Much of the spending isn’t on infrastructure/investment, but on consumption.

It’s not as if I will be able to take my grandchildren to one side in thirty or forty years’ time and point to many bridges, railways, hospitals and new university buildings and say “I’m a bit sorry, little ones, to saddle you with an enormous debt burden, but look at all these wonderful things you have at your disposal for the rest of your lives. I hope you agree that my generation made the right decisions on your behalf and you can cope with paying off most of the bill.”

Instead, I’ll be pointing to lots of retired nurses, doctors, teachers and police officers and have to say “You see all these guys? Well, they are retired now. They treated me when I was sick and made me better. They protected me from crime and violence and they taught me many of the things that helped my career prospects and expanded my horizons. In return for that, I voted for you to pay for their pensions. My thanks and my apologies”.

Interestingly, there is an inter-generational moral imperative shared by environmentalists and by those concerned about the debt/deficit (there may be a differences on which is worse, but the argument that the unborn are not being fairly represented or treated seems similar)

My reply:

Yes, there is a shared concern about the debt (financial and physical) we are passing on to our children. Mark is right to point out that much of the spending isn’t on infrastructure/investment, but on consumption. It is clearly wrong to spend more than we are earning. This is the point made by E F Schumacher in "Small is Beautiful": We may use capital resources only if the wealth they produce is used in rendering us independent of those resources. This sound economic principle has been totally ignored by all non-green "economists".

But let us look more closely at the nature of the legacy. Ecological deficit is far more of an existential threat than an economic deficit. Debts can be forgiven, repudiated as odious, or melted away with inflation. None of these things can be done to ecological deficit.

Extinction is forever.

Always remember: Food can get you through times of no money better than money can get you through times of no food.

However, there is an interesting interaction between ecological recession and economic recession, in that real efforts (as opposed to superficial) to cure the ecological recession will provide the needed economic stimulus that the recession needs.

The classical Keynesian response to recession is investment in the nation's infrastructure.
Some infrastructure yields a better dividend than others.
Bridges and roads may help the economic efficiency at the margins, but energy conservation is far more productive, since it not only

Mark rightly raises the question of our legacy, but wrong to set hardware (universities &c) against software (pensions).

First, he is mistaken about the situation with doctors' pensions. They are not paid for out of general taxation, but out of contributions made by people currently employed by the NHS. I know, I was a contributor, and am now a recipient.  I believe the same applies to some other public sector workers.

Second, our legacy is not just physical deliverables, but also intellectual capital such as education,  knowledge - and, indeed, humanity. There is such a thing as social capital – a stable, tolerant, integrated society, relatively crime- and corruption-free.

So by treating our elderly with kindness, we are handing down a tradition of humanity which is valuable, although not easily costed. (Who was it that knows the cost of everything but the value of nothing?)

Moreover, not all state expenditure is generically the same. Money laid out in pensions is not the same as money made available to heads of financial corporations. Pensioners recirculate their money in the local economy, whereas money given to corporate bosses is saved in offshore bank accounts, lost forever from the national economy.

More about pensions from Left Foot Forward.

This response is running on longer than I intended. I will stop at this point, and the next blog post will look in more detail at the UK debt position.

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