The debate the government deficit reminds me of the slogan that The Sheep from Animal Farm chanted in support of The Pigs: “Four legs good, Two legs bad”. Anything The Pigs did was OK, because they were Animals, and therefore good. Anything Humans did was not, because they walked on two legs and were therefore bad.
Ditto the debate over the debt levels being accumulated by the Federal Government in response to the Global Financial Crisis: it seems that Government debt is “two legged”, while private debt incurred is “four legged”.
How else can you explain the complete indifference that both sides of politics have displayed to the explosion in private debt over the last two decades, and the scorn and shame associated with the recent increase in government debt?
For the record, “two legged” private debt now stands at $1,917 billion. Households owe over $1 trillion on mortgages and $139 billion on personal debt, and businesses owe the remaining $755 billion.
“Four legged” government debt currently stands at a comparatively trivial $47 billion, and is projected to rise to $188 billion by 2013.
I think the Treasury’s projections of government debt levels are fantasy, based on the rosy belief that “the deepest global recession since the Great Depression” (as Treasury itself describes it), will result in an unemployment rate of only 8.5 percent. But even so, a debt level twice that bad would still be less than a third of what Australian households currently owe on their bricks, mortar and plasma TVs.
So why is government debt bad and private debt good? Because both Labor and Liberal subscribe to what might be called the Pig theory of economics, in which private debt is supposed to reflect rational decisions by the private sector, while government debt reflects wasteful expenditure by the government.
I hope enough Australians are not as Sheep-like on this issue as the Pigs think we are.
Baaaa, wasn’t this crisis caused by excessive private debt—especially in the USA with its Subprime Scam, but also here and across the rest of the OECD? Wasn’t a lot of that debt utterly wasteful—borrowed money betting that share and house prices always rise? Or even worse, borrowed to concoct financial products that were once called “Derivatives” and are now more accurately described “Toxic Assets”?
Baaaaa, aren’t governments worldwide going into debt to try to spend their economies out of the recession caused by a collapse in private spending? Isn’t the recession itself is a direct result of all this private borrowing going bad? Wouldn’t the Liberals be running up public debt now, if they had won the last election? So why criticise Labor for doing what you’d do, if you were in their hoofs?
Baaaaa, weren’t public assets run down during the last two decades while tax revenue was handed back as tax cuts? Don’t we need to spend on our hospitals, schools and rail now, to make up for a decade of neglect as the private sector partied?
But while The Sheep may doubt the Pig theory that private is always good and public always bad, it takes a while for such realism to seep into The (Parliament) House, where the two Pig factions fight it out over ideology rather than sense. Just as the Animals in the end couldn’t pick the difference between Pigs and Humans, distinguishing Liberal from Labor over debt is pretty challenging.
Maybe we need to replace The Pigs with an entirely different breed of Animal.
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