The burden of debt is overwhelming country after country. Greece is in the headlines now but there are scores of others teetering on the precipice. The world may be on the verge of a mammoth financial meltdown more catastrophic even than the Great Depression.
The world is waking up to the importance of ‘fiscal prudence’ in running a nation’s affairs. But it is too late. Country after country has incurred debt which they cannot possibly repay, and if forced to try, as is being demanded of Greece, will condemn their people to interminable misery. The international financial structure is increasingly unsustainable.
It is a mystery. Ordinary men and women of good sense have always known that profligacy leads sooner or later to misery. Charles Dickens puts the matter perfectly into the mouth of Mr Micawber, one of his great fictional characters: “Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.”
It applies to nations also – certainly to small developing nations like ours. Get the country into deep debt, waste money, run big deficits in the public accounts, indulge in over manning and lax financial controls in the state and banking sectors, and, sure enough, misery will be the lot of the unfortunate and helpless citizens – though not at all necessarily the leaders – of the country at fault. Debt grows, inflation takes hold, the currency depreciates, the economy declines, with the inevitable result that standards of living fall drastically to reflect the nation’s ruined state. If a nation can’t make ends meet then very soon its citizens cannot make ends meet. We in Guyana once had quite a lot of experience of that sort of thing.
When nations are grossly profligate, international institutions take a lot of blame because they are often associated with intervention that causes a drastic fall in standards of living. And the IMF indeed has often been heavy-handed in applying rule-of-thumb ‘conditionalities’ which all too often are inappropriate to an individual country’s circumstances. But the truth is that in many cases a fall in living standards really has nothing to do with the IMF and everything to do with the nation’s ruined state which occasioned the IMF being summoned. Fundamentally, the misery flows from the nation’s fault. Jamaica is a current case in point. Let us make sure we in Guyana avoid ever again falling into the clutches of the IMF.
As an aside, it should be noted that there is one country in the world which defies the general rule that you must earn as much as you pay in international trade. That country is the United States. While it is an axiom of international economics that no country can forever run a large trade deficit that must be financed by international borrowing, the axiom does not apply to the United States. This is because the United States in effect provides the world’s reserve currency and can borrow what it must borrow in its own currency. Since it can print dollars there are no risks of default and in that sense the United States isn’t really an international borrower like other international borrowers.
Lucky America! Other countries have no such luck. As a result governments of small, poor states like Guyana have to listen carefully to the words of a great West Indian, born in Nevis, who was one of the founding fathers of the Unites States. In his ‘Report on a Plan for the Further Support of Public Credit,’ dated January 6th, 1795, Alexander Hamilton perceived a universal truth:
“To extinguish a Debt which exists and to avoid contracting more are ideas almost always favoured by public feeling and opinion. However to pay Taxes for the one or the other purpose, which are the only means of avoiding the evil, is always more or less unpopular.
“These contradictions are in human nature. And the lot of a Country would be enviable indeed in which there were not always men ready to turn them to the account of their own popularity or to make other sinister account.
“Hence, it is no uncommon spectacle to see the same men clamouring for occasions of expense, when they happen to be in unison with the present humour of the community, whether well or ill directed, declaiming against a Public Debt, and for the reduction of it as an abstract thesis: yet vehement against any plan of taxation which is proposed to discharge old debts, or to avoid new by defraying the expense of exigencies as they emerge.
“The consequence is, that the Public Debt swells till its magnitude becomes enormous, and the Burthens of the people gradually increase till their weight becomes intolerable. Of such a state of things great disorders in the whole political economy, convulsions and revolutions of Government are a Natural off-spring.
“My previous report suggests the Idea of “incorporating as a fundamental maxim in the System Of Public Credit of the United States, that the creation of Debt should always be accompanied with the means of its extinguishment – that this is the true secret for rendering public credit immortal, and that it is difficult to conceive a situation in which there should not be an adherence to the Maxim.”
“The creation of debt should always be accompanied with the means of its extinguishment.” I doubt that such wise words will ever be heeded by politicians anxious always to gather votes – but for what they are worth I set them out for scrutiny at a time when I believe the government’s budget is being prepared.
