The Economics of Enough_ How to Run the Economy as if the Future Matters - Diane Coyle [48]
Indeed, some people believe this large debt burden created in part by demographic change, as well as ever-more generous systems of state payments, is in turn contributing to an even greater decline in population in a slow but equally vicious spiral. Faced with the accumulation of debt created by current and past governments, what do future generations of taxpayers think? Axel Weber, president of Germany’s Bundesbank, said, only half-joking: “They are doing the only thing they can. They’re avoiding being born.”12 The economic incentives (on parents) are certainly not the only influence on birthrates—and, of course, these can change in the space of nine months or so—but to the extent that economic pressures reinforce cultural and social influences, they are certainly not encouraging more babies to be born.
Does this matter? Some environmentalists would argue that it is desirable: the population needs to shrink in order to bring the burden humans are placing on the planet’s ecosystems and climate down to a manageable level. But even if you accept the need for a smaller human population—and not all would agree—all the people who are alive today need to be fed, sheltered, clothed, and kept in all the other goods and services they want—health care, cinema trips, furniture, books, schooling, phone calls, cameras—using the efforts of the people who are working today. If the ratio of nonworkers to workers rises, either the workers have to get much more productive or the non-workers have to do without.
What is certain is that governments can’t keep on ignoring the demographic change by borrowing more, especially not on top of their acknowledged debt due to expensive bank rescues and the recession. The funds have to be borrowed from somewhere. Debts are owed to specific lenders. Both debt burdens—to pay for pensions and social spending, and to pay off the banks—are owed to a mix of lenders at home and abroad. Many of those at home are pension and investment funds, so the government is borrowing from its own voters. A growing proportion of the debt is being funded, however, by developing countries with high savings rates, especially China. As of March 2007, China held $421 billion of U.S. Treasury securities. By October of that year, its holdings were $388 billion, a reduction of $33 billion. Its net purchases since then have been small.13
Now, as noted earlier, small enough debts don’t matter because the interest on them can easily be paid from future taxes. Is the double debt burden on the rich economies now, the post-crisis financial debt and the unfolding crisis of social debt, too big? After all, the banks had to be bailed out in order to prevent an unprecedented economic collapse, and every rich country—even the small-government nations like the United States—believes a social welfare and pension system to keep citizens out of extreme poverty is a minimum requirement of a prosperous and civilized society. The question really is whether debt has grown to the point of unsustainability. I believe many countries are close.
HOW MUCH DOES GOVERNMENT DEBT MATTER?
In the months after the scale of the financial crisis became apparent, and the need for a fiscal stimulus by the government to prevent a deep recession was accepted, one of the (many) disagreements among economic commentators was about how much the government needed