Our society faces many problems that require action by our government. As much as we might wish to address climate change and reduce inequality, are the public finances able to fund achievement of these laudable goals? As I show in my new book, The Debt Delusion, the answer is a resounding “Yes, we can!”
global financial crisis in 2009-2010, the US and UK public sector deficits
briefly reached 10% of national income. That
deficit looks small compared to the budget imbalances in the USA and UK during 1941-1945. The US federal government deficit
ballooned to almost 30% of GDP, and only slightly less for the British
government. American or British
politicians did not argue that the war was “unaffordable”; no-one suggested
that the deficits were so excessive that governments should capitulate because
of reckless expenditure.
literal life or death struggles that justified whatever budgeting measures were
necessary to sustain the war effort. Today
climate change and inequality are no less pressing on our society than was the armed
defense of democracy in the 1940s.
affordability argument seems reasonable on the surface: our government has a limited budget and we
must live within it. Taxes are the
source of our government’s funding. Spending
more than the budgeted amount results in living beyond our means. Any project
that over-runs the budget is not affordable no matter how commendable.
is wrong. Governments that manage their
own currencies do not confront fixed budgets.
They create their “means” either through increased tax revenue or
borrowing. Expansion of our economy
automatically generates more revenue. If
the need for greater expenditure is too urgent to await economic expansion, our
government can borrow. If immediate
borrowing by sale of public bonds in capital market appears unsustainable
because the market interest rates would be too high, the Bank of England or the
Federal Reserve Bank can act as a backup purchaser (BoE
holds 25% of the UK public debt). In
fact, borrowing rates are extremely low.
suggests intention of a deeper meaning of the word “afford”. An example of the deeper message of
affordability begins with the indisputable assertion that in many countries the
population is ageing. At some point the
income earning of elderly people ends, replaced by public and private
pensions. In the 21st century,
people are living longer, with elderly people living long enough to draw
pension payments for an extended period, which is in itself is a good thing. Even though pensions are taxed, the shift of
adults from taxpayer to pension recipient impacts on tax revenue. This reduced tax effect goes along with
elderly people generating a high demand for public services, especially care
However, in all
societies the younger care for the older.
As societies become larger and more complex, the elderly receive this
care less within the family and more through institutions specifically
constructed for that purpose. Looking
after elderly people who require specialized medical care tasks occurs partly in
families, but in high-income countries this care increasingly occurs in
institutions can be public or private. Since
an institution will do much the same things whether public or private, the cost
is likely to be much the same for a given quality of care. The commitment of a civilized society to
provide adequate care for the elderly determines the total cost. The extent to which the public or private
sector provides the means to fulfill that commitment is a political
We can imagine the policy process as follows. First, do we as citizens commit ourselves to
ensure that the elderly have a healthy and dignified retirement? The political answer may be, “no, that is the
responsibility of each family”. Most
would consider that a callous political choice that results in a rationing of
health and dignity by household income.
If collectively we make the opposite political decision to honor the
social commitment to care for the elderly, a second question arises: to what
level of healthy and dignified retirement does society commit itself? Our government will implement that collective
commitment through appropriate institutions.
Be the institutions public or private, it falls to our government to
ensure full and non-discriminatory access, to regulate health and safety, and
to monitor performance.
choice between funding by tax or private income has no impact on “saving money”
or shifting “burdens”. Consider the
example of a family with an elderly member no longer able to carry out the
routine of daily life. This elderly
person moves into a care home that is funded through taxation. After an election the new government
announces that it has sold the care home to a private corporation. In the future the elderly residents must pay
for all their care. The consequence of the privatization of elderly care is to
change the form of the household’s payments from taxation to direct payment to
the private care provider. If household
incomes were equally distributed, total care cost were the same for public and
private provision, and the quality of care was also the same, a change from
taxation to direct private payment would involve a mere shift in funding
In no country
are household incomes equally distributed.
In all wealthy countries the tax system is progressive: the higher the household
income, the larger is the share paid in tax.
Taxation provides the vehicle to fund a standard of care that fulfills
the commitment of full and non-discriminatory coverage. While it counters the
inequality generated by market economies, the shift from public to private
funding does not alter the total cost of the commitment to universal
should refer to society as a whole and not merely the public sector. How society divides provision between public
and private is a political choice. The
appropriate question is not whether we can afford elderly care, environmental
protection or a range of public services but “should we pay for that?” If
the answer is “yes”, then democratic governments will find the means to pay by
taxation or borrowing.
Occasionally societies face the need to “tighten their belt” and cut back other spending in order to afford a service or policy action. When they do so it should be to achieve a noble purpose, such as saving our planet, not to shirk from the commitment to a just society. Public debts and deficits are not in themselves problems. On the contrary, they can contribute to the solution of society’s needs.
John Weeksis Coordinator of the London-based Progressive Economy Forum and Emeritus Professor of Development Studies at SOAS, University of London. His new book, The Debt Delusion, is now available from Polity.