We’re deep in election season, with politicians of all stripes being asked to explain and justify their policies to a curious electorate. Journalists, moderators and members of the public ask them about Covid, about crime, about poverty, housing and the environment. But there’s one question they never ask, and I really really want to know the answer. It’s this:
“By way of the Reserve Bank, the Government is effectively borrowing from itself to finance much of the Covid-19 response. Is it your intention to ever pay this debt back, and if it is, why?”
See, as far as I can tell, Social Credit aside, the political parties are all campaigning as if this is a debt that must be repaid. Now, if they’re true to their word, then they intend to ask future tax payers to forgo any number of essential services – access to mental health services, access to elective surgeries, adequate building programmes in state schools, access to drug rehabilitation programmes, safe roads, preventative health programmes, adequate income for the most vulnerable…. The list is sort of endless and whichever way you cut it, if you’re committed to repaying these billions of dollars of loans, you’re committed to providing less, significantly less, in some or all of these areas.
Now, it takes no genius to see that cutting such programmes, or failing to expand them, is going to cause immense hardship, and without resorting to hyperbole, cost lives. So the question has to be, what would be so terrible about saying, actually, we’re not going to repay that debt at all? It’s a debt by the Government, essentially to the Government. Spending has been funded, in essence, by expanding the money supply, a mechanism that is an economic commonplace around the world. To label it a debt, and speak and of it as if it needs to be repaid, strikes me as strange, unless I’m missing something obvious and there’s something really really bad about simply cancelling it. So I think we need to ask the politicians, why do you think we need to pay this money back?
There are some answers we can reject right off the bat, I think. The old bogeyman in this situation used to be inflation, but if this move is so inflationary, then that’s going to occur now, as the money supply expands, not at some point in the future when we fail to repay the debt. And the evidence at the moment is pretty clear. Inflation remains firmly under control.
Another popular answer is to do with the balance of payments, and the danger of the extra spending fueling an import spending spree, especially at a time when our tourism sector has been so hard hit. But, refer above. The spending’s already happening, necessarily, so any trade hit is inevitable now. Again, the commitment to paying it back at some stage in the future is largely irrelevant with regard to this putative danger.
Finally, some might say that a public commitment to this type of financing will destroy our international credibility and there will be a run against our dollar. But, again, the monetary expansion is already happening. We’re spending up large on the back of Government-created debt, and whatever the mechanism, financiers aren’t so foolish as to only be spooked if the action is named a certain way. And the currency isn’t tumbling (on the trade front, a little fall is never a bad thing anyway), which shouldn’t surprise us when we consider that we’re hardly the only country following this path.
Yet, so entrenched is the orthodoxy on this matter, so reflexively, religiously are the neo-classical views held that when they are breached, and the sky doesn’t fall, the disciples find themselves with no choice but to look away and pretend it isn’t happening. But this is an election, and on this particular issue the stakes couldn’t be higher. So would somebody, somewhere, please ask the politicians the question. I really want to hear their answers. If they give a good one, it’ll change my vote.