Can government debt be justified? Distributive justice, intergenerational equity and Catholic social teaching
If governments borrow money, in general future generations of taxpayers will either have to pay interest on that debt (via higher taxes or reduced government services) or repay the debt. Alternatively, the debt might be inflated away and those who owe the money, as well as others, then suffer. Or the government might default, causing all sorts of problems for those who hold government bonds who might, for example, see their pensions reduced. The argument is very similar to that used in the case of climate change.
A talk given by the former Prime Minister of Ireland, John Bruton, to St. Mary’s University also made this connection between government debt and climate change. John Bruton included future pension liabilities in his definition of government debt. His reasoning was that Western governments have created systems of pension provision that involve making promises to pay pensions in the future to the current working generation. Those promises will lead future working generations to pay taxes to finance those pensions. The pensions for the future older generation are not financed by their own savings but by the taxes of future working generations. With the decline in the birth rate, this has left an obligation that might be impossible for future generations of taxpayers to service. This is similar to a government debt.
If we look at government debt as a percentage of national income over a long period, we can see very high peaks after the Napoleonic Wars and after the First and Second World Wars. Reducing debt after these events caused pain for the following generations and required a fair degree of luck. We only have to think about the industrial conflict in the 1960s and 1970s as workers went on strike for higher wages as wage increases were eroded by rapid inflation (which was also eroding the real value of government debt and the modest savings of people who had been prudent throughout their working lives).
The situation we are in now has already taken government debt to over 100 per cent of national income and it will almost certainly climb beyond 130 per cent. Even before the current crisis, the Office for Budget Responsibility took the view that government debt would rise to over 250 per cent of national income over the next 50 years on current policy because of the promises that had been made to future pensioners.
But, given that we have had 300 years of government debt in its modern form, why should Catholic social teaching now start to give this consideration? One answer is that current levels of indebtedness combined with ageing populations could give rise to a number of developed-country governments defaulting on debt or being unable to meet healthcare or pension obligations to future citizens. A second answer is that, in the postwar period, government debt has been piled up in country after country to finance increases in consumption rather than to deal with one-off shocks.
The avenues down which Catholic social teaching should be going, I believe, are as follows:
- Incurring debt to fight a just war when the survival of the nation is at stake does not offend intergenerational distributive justice.
- Dealing with one-off shocks (famine, disease, and so on) by increasing borrowing also does not necessarily offend distributive justice – there is no reason in distributive justice why the current generation should necessarily bear all the costs of these events.
- Borrowing to invest in, for example, infrastructure or other investments does not offend distributive justice as such, but a government should be prudent in how it goes about such activity and ensure that it is not done for the purposes of political self-aggrandisement.
- Building up debt because the current generation is not willing to pay the taxes necessary for government consumption and redistribution does offend distributive justice. There are no criteria of distributive justice by which future generations should be obliged to fund the consumption of the current generation except in extremis. Such borrowing and over-consumption offends the common good in other ways too (this will be the subject of further posts).
But John Bruton is also surely right. To set up systems of pension and healthcare provision that put burdens on future generations when we do not know whether they will be able to meet them has to be questionable from the perspective of distributive justice. The alternatives would require more insurance (perhaps through mutual organisations), more savings and more family support for the elderly – something that has generally been supported in Catholic social teaching.
It is comforting to reach the same conclusion about how we should care for the elderly from two different directions. Indeed, it is perhaps not surprising that by putting responsibilities on the government that naturally belong with the family it has led to trouble.
This article was first published on the Catholic Social Thought blog of St. Mary’s University, Twickenham.