Debt, the cancer of democracy
Op-ed published on January 31, 2017, on Blogactiv.
The rise of populism is a worrisome democratic phenomenon in that it appears to be threatening the very foundations of our democracies. In France, the next presidential election opens the risk of a very strong showing for the National Front. Elsewhere, the Brexit vote, the election of Donald Trump, the victory of Viktor Orban in Hungary and the participation of the True Finns in the ruling coalition signal the spread of this phenomenon to all developed countries.
Of course, many experts have become interested in this topic and have identified possible reasons for its development. It seems to me, however, that the role of public debt has not been emphasised sufficiently. It is important inasmuch as its existence is the symptom of a very serious illness in the democratic system.
Many comments point, correctly, to the effects of the 2008-2009 financial crisis. But they neglect to single out its true cause. As explained by economists Carmen Reinhart and Kenneth Rogoff, monetary and financial crises all have one point in common: excessive debt. These huge masses of debt are dangerous because they leave the economy at the mercy of a crisis of confidence, they say.
This notion of trust lies at the heart of the moral crisis of our democracies. If a crisis of confidence can cause a financial crisis, it is because this results from a breach of the social contract.
What, in fact, is public debt? Beyond all the explanations justifying it, it embodies the amount that public authorities spend without daring to seek the consent of their fellow citizens. If they had this consent, financing it through taxes would have sufficed. Choosing debt amounts to parliamentarians choosing to spend more without their constituents’ prior consent.
Consent to taxation is a foundation of our democracies. Once our political authorities feel they can disregard it by creating debt, they flout this pillar that is a guarantor of peaceful cohabitation. Consent to taxation is an active component of human cooperation. It symbolises the phenomenon of so-called voluntary servitude described by humanist Etienne de la Boétie. This refers to our consent to abide by legal, conventional or informal constraints with the aim of cooperating peacefully.
This voluntary servitude, these constraints that people impose upon themselves to live in harmony, is fragile. As Paul Seabright noted in his work The Company of Strangers, mass cooperation among strangers, the division of labour, is not easy for humans. On the contrary, they need to overcome natural distrust to collaborate with a stranger. How do they achieve this? By creating institutions and, in particular, by writing constitutions that are not just words in the air but documents that people believe in. When it becomes obvious that the spirit of a constitution is no longer being respected, people stop believing in it, and this creates distrust.
This distrust is seen everywhere in countries that have abandoned the notion of balanced budgets, regarding it as obsolete, whereas it lies at the heart of the social pact. Tomorrows of disillusionment lie in store for these countries, because there is always a moment when the day of reckoning comes. Not surprisingly, citizens are reluctant to pay when the waiter eventually brings the bill, because they did not order anything. Forced to pay, they feel cheated by their leaders and seek alternatives that reflect their feelings more accurately: their discontent with taxes, their crisis of identity, their mistrust toward foreign creditors, their domestic exile or departure abroad….
Public debt is not just a matter of accounting. The surge it has shown weakens our democratic countries. Like a cancer, it has developed over the years, and some of its metastases are called populism. Anyone who places hope in higher public debt underestimates just how much this causes our democracies to rot.
In the 19th century, left-wing parties understood this risk clearly. They defended fiscal balance in the name of protecting the poor of future generations. It is high time that we reclaim this position and push the political class to stop living on credit. Balanced budgets are important in our democracies.
Cécile Philippe is Director General of the Institut Économique Molinari.