Forgive Us Our Debts? National Debt in Christian Perspective
Monday, 7 October 2013
| Amar Breckenridge
Wilkins Micawber famously gave the following advice to David Copperfield, in Dickens’ novel of that name: “Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery”.
Perhaps the ghost of Micawber has held sway over Australia’s major parties over the last two years, such has been the fervour with which they have underlined their efforts to return the federal government’s budget to surplus. At the same time, while Tony Abbott and the Coalition long campaigned on the basis that they would achieve this in their first term of government, they subsequently postponed the promised surplus to a later, unspecified date. One is tempted to ask whether Mr Abbott, a former seminarian, simply substituted the wisdom of Micawber with that of Augustine’s wayward prayer—“Make me virtuous, but not yet”.
Or maybe this simply reflects that, for all the attention on the deficit, the main issue is really the level of government debt. The distinction between the two is that the deficit is a flow, like the water that comes out of a tap, and that debt is a stock, like the volume of water in the bath. You would tend to worry about the water coming out of the tap if the tub is about to overflow. On the other hand, a torrent of water coming out of the tap may not worry you if the bath is empty; indeed you may find it a good thing.
With an overall government debt stock at around 30 per cent of GDP, Australia seems to be sitting reasonably well compared to a number of other industrialised countries, such as the US (where it is around 100%), Italy (at around 130%) and Japan (at a whopping 240% or so). Economists get worried when debt approaches these triple digit percentages, as there is an empirical association between persistently high levels of debt and economic stagnation. This may be because high levels of public debt soak up savings that may otherwise have gone to support productive investment; or because when creditors see high debt levels, they worry about repayment, which makes them charge higher interest rates, which in turn can reduce economic activity.
But association is not causation. Economic stagnation may be the product of another factor (such as war or a financial crisis), and that stagnation may explain why debt levels remain high, since an economy cannot repay its debt if it does not grow. This is the principal argument put forward by opponents of austerity measures in Europe—that these measures entrench stagnation and prolong the debt overhang.
So, given all this, should Australia be relaxed about its government’s indebtedness? Or should it be concerned by the fact that since the fiscal stimulus of 2008, it has been accumulating debt at one of the fastest rates amongst developed countries. Debt represents a claim against the future wealth of the nation, and with an ageing population – and thus potentially large, uncosted, future health and benefit liabilities—what would be a responsible way of thinking about debt?
Because thinking about government debt cannot be separated from the general question of managing the resources of society, any biblical theology of debt relies on a biblical theology of economics. Space permits only a very potted overview of some of the themes that emerge from the biblical narrative. The account of creation in Genesis sees humanity vested with the responsibility of stewardship over the Earth’s resources. Any response to the mandate to go “forth and multiply” necessarily requires that such stewardship take into account the interests of future generations. The law and the prophets also highlight God’s strong concerns regarding inequality and poverty, themes that are picked in the teachings of Christ and the New Testament generally. In particular, Christian action on behalf of the poor is presented as a sign of the in-breaking of the kingdom of God into the present age.
Also relevant to our discussion are notions such as sacrifice for the sake of others, including future generations. The notion of sacrifice is closely interwoven into Australia’s own national narrative – in particular the sacrifice of its soldiers in both world wars, so that future generations of Australians may enjoy freedom and prosperity.
Returning to economics, one point that should not be lost in the discussion of government debt is that in almost all advanced countries, private debt sky-rocketed in the last decade. By 2008, this was nearly 200% of GDP in Australia and even higher in the US and UK. Such increases were fuelled by access to cheap credit driven by abundant savings in emerging economies, and a self-reinforcing spiral of rising asset (principally housing) prices and borrowing made against these. When financial markets came to a juddering halt in 2008, the fear was that heavily indebted households and heavily exposed banks would lead to economic meltdown—hence intervention by governments through stimulus packages to keep the economy afloat by taking on public debt.
Australia was in a stronger economic position than most other nations at the onset of the global financial crisis, thanks to the economic reforms undertaken in the previous two decades, and because of increased demand for its natural resources. Australia was thus in a better position to launch a stimulus and weather the crisis. But was this wise stewardship?
Perhaps unsurprisingly, economists differ as to how far the stimulus avoided a recession, compared to other factors underpinning Australia’s prosperity. Critics of the approach are likely to say that it has increased the future burden Australia has to bear, in part as a consequence of unwise private spending decisions. Defenders will say that the intention was to avoid the sort of economic stagnation that would have imposed future burdens anyway, for example through lost employment opportunities, particularly for younger people.
Given that public debt sustainability is not at present a worry in Australia, it is perhaps more profitable to focus on the types of spending that end up contributing to Australia’s debt profile. Debt that finances productive investment will for the most part eventually pay itself away. But there are plenty of government commitments that are unlikely to meet this test. Tax breaks for resources companies (which throw public money after private gain and have bad environmental effects), subsidies for car manufacturing, and various forms of green financing, which have a habit of picking out “green elephants” rather than the white elephants of yore, are examples of such commitments.
The fact that these chosen examples span the political spectrum is not an attempt at diplomacy. It is more a reflection of the fact that budget decisions will often be influenced by the need to appease various constituencies that are influential within the electoral cycle, even if it means that the net result is a self-defeating mess (witness the inherent conflict between the aforementioned tax breaks to resource companies and green finance initiatives).
But sound economic governance and debt management are inter-generational issues that require longer time horizons. Unfortunately, many of the institutions and policy processes that made Australia good at such longer term planning have been progressively undermined over the last 6 years or so. Various inquiries that would normally have been the province of institutions such as the Productivity Commission have been handed to task forces that seem hand-picked to provide advice that is politically expedient. This has not only led to waste, it has also left exposed areas where the government should invest on both economic and equity grounds but tends to neglect because their constituencies lack clout. Obvious examples include Overseas Aid and Disability Insurance.
In thinking through the question of debt, it is important to dig below potentially misleading slogans about deficits, and broad headline numbers, to assess the real questions of resource allocation—stewardship, in Biblical terms—that underpin the numbers and decisions around them. In particular it is important to ensure that those without a voice are heard, that the ethical is not sacrificed for the expedient. It would also be opportune for those concerned about government debt to pay attention to private debt, which at the levels seen in the recent past point towards a society living well beyond its means. It is hard to reconcile such levels of indebtedness with Biblical notions as sacrifice and concern for future generations.
The fact that much of this will seem like straightforward applications of biblical ethics should hopefully help to demystify public policy economics. In general, if an economic argument sounds unnecessarily convoluted, it is usually because it is a cover for some vested interest or another. Moreover, as this discussion indicates, if you want to think about economic matters, it is helpful to think ethically first. Where ethical reasoning is deficient, bad economics is likely to result. But giving economics a good ethical framework will foster a better stewardship of resources, for the present day and for future generations.