The Economics of Enough_ How to Run the Economy as if the Future Matters - Diane Coyle [41]
All of these reflect the failure of political and social institutions to keep pace with the ways the economy and technology have developed in the past generation. The natural world is the most urgent and potentially catastrophic manifestation of the inadequacy of the institutions we have for coordinating the lives and decisions of 7 billion people. But these crises of sustainability are related. They are all—including the environmental challenges—the symptoms of a failure of the institutions that shape our economies and societies, the forms through which we reach collective decisions. The term institutions encompasses both markets on the one hand and political and governmental structures on the other. The second half of this book will look at the economic and political institutions, and the processes for taking policy decisions, needed for the world of Enough.
THREE Posterity
Serious environmental challenges are only one aspect of the widespread sense that the economic and social framework of our world is in crisis. The other dramatic and immediate crisis of recent times has been the financial crisis, the near disintegration of the global banking system, which started slowly in 2007 and reached a crescendo with the collapse of the investment bank Lehman Brothers in September 2008 and its impact on financial transactions around the world. The literal failure of the financial system, and the deep and long recession it triggered, offered a dramatic demonstration of the unsustainability of the way the global economy had been operating. Although there has been a vigorous public debate subsequently, for example, about the need for tougher financial regulations or the break up of some big banks, the immediate opportunity for fundamental reform provided by the crisis has slipped past.
Yet reform is needed. The huge burden of public debt created in the course of the financial breakdown remains, and remains unsustainable. The figures are simply staggering—the increase in government debt due to the financial crisis adds to existing large but hidden debts. The debt burden due to the financial crisis comes on top of existing government debt burdens, sometimes acknowledged, more often off the books either as a deliberate sleight of hand or because they are implicit in the promise of future pension and welfare payments. As well as repaying the debts incurred in sorting out the banking crisis, taxpayers will have to shoulder the debts created by a system of pensions and social welfare, which are going to cost more than will be readily available to pay them in future. This is partly due to the structure of the pension and benefits systems and partly because in many countries birthrates have fallen so much that the population of working adults is going to decline. I’ll argue here that the full debts are unlikely to be honored. It would be politically unsupportable to do so. What’s more, in some countries the scale of the government debt is so large that it could depress the economy’s potential to grow enough ever to meet the burden of repayment.
For more than a generation Western governments have been borrowing on a large scale from their own citizens but increasingly also from foreigners in much poorer countries. The cost of these promises will be piled onto taxpayers as yet unborn or too young to vote, and to these now are added the costs of the debts created by the banking crisis. In the next decade or so, as those taxpayers start working and earning and voting, it will become clear that these large transfers from all taxpayers to specific social groups (those with enough income to have lent part of their savings to the government), or to citizens of other countries whose governments have bought these debts, are unsustainable.
I will look