There is a familiar storyline in classic European novels, in which a young man from a wealthy family wastes his inheritance through foolish behaviour. In Russian examples this generally involves running up massive losses at gambling tables, whereas in the most famous German example – Thomas Mann’s Buddenbrooks – it occurs when the northern virtues of diligent labour and prudent trading are abandoned in favour of the southern vices of impulse and the cultivation of an artistic temperament. The reckless squandering of great wealth that had been carefully accumulated by one’s ancestors is presented to the reader as an evident sign of personal irresponsibility and, more widely, social decline. It is far less common to read of older people of modest means, whose ethical failing consists in indebting their great grandchildren. I find this surprising, since duties, presumably, should run in both directions, up and down the family tree.
One of the many achievements of the welfare state, which became the dominant socio-economic model in the Western world in the second half of the twentieth century, was that it replaced the lottery of family inheritance with a safety net that guarantees a minimum of goods and services to all citizens, regardless of what might be passed down by their families. Irrespective of what kin supplied, kith ensured a decent standard of living for all. That was the basic idea. Lately, as the cost of goods and services continues to rise – due in part to a steady expansion of expectation as to what might be included in the baseline package – and widespread resistance to higher taxation grows, Western societies have all – to a greater or lesser extent – decided that their welfare state should be partly funded by future citizens.
Public debt is deferred taxation; spend now, pay later. There are all sorts of reasons for thinking that this a sensible way of managing the mismatch between the appetite for services and the willingness to pay for them through the tax system. Spreading costs over time has long been understood as a good strategy for individuals – using mortgage payments to buy a house, or insurance premiums to cover the risk of having to replace a major item that might be lost – and using borrowing to fund investments that will improve future profitability is well understood as a rationale for corporate leverage – the increased productivity achieved by upgrading machinery or premises, or the improving sales that follow from a large marketing campaign – so it should come as no surprise that a similar approach has been adopted by governments. The national debt exists, so it is said, not to burden future generations but to increase their inheritance: it should not be thought of as a liability that we pass on, but as a mechanism for increasing the size of the legacy we leave behind. Well, maybe.
Continue reading “No taxation without representation”