The Economics of Enough_ How to Run the Economy as if the Future Matters - Diane Coyle [51]
Any resolution of the unsustainable debt burden, whether this happens in unintentional or planned ways, will involve a mix of:
• reduced consumption and increased saving in the indebted rich economies, either through higher taxes or higher private saving to pay for services governments will not be able to afford to offer in future;
• more work and less leisure, in order to support aging populations and reduce the ratio of dependents to earners, which can come about in several ways, set out below;
• more effort, or higher productivity, so that the growth of the economy can help make the debt burden easier to service;
• investment of Western savings in faster-growing emerging economies, again to help pay off the interest and debts;
• improving the demographic profile, creating more taxpayers, through increased immigration of working age people, or a higher birthrate;
• default on debts, either overtly—unlikely given the obvious costs in terms of higher interest rates that would have to be paid for subsequent borrowing and the upheaval in trade and financial markets—or covertly by allowing inflation to eat away at the real value of existing debt.17
Each of these options has a different degree of political and social palatability, and can come about in different ways. The route through will be the result of political choices, most of which politicians do not care to talk about. So it’s worth exploring the different possible routes back to sustainability.
Reduced Consumption, Increased Saving
Just as in the case of environmental sustainability, if we are overconsuming resources there will have to be a reduction in that consumption and an increase in saving. As the financial debts that have piled up have been incurred by governments, much of this adjustment will have to come about through reduced government expenditure and increased taxes: a government deficit is “negative saving” by the state. Some groups of individuals in some countries, especially the United States and United Kingdom, are burdened by debt too but household debt even in these two countries is small beer compared to government debt.
As discussed above, the scale of the adjustment in the role of the state implied by the required debt reduction is staggering. The dual financial and social debt crisis will mark a significant turning point, likely to be just as significant as the long expansion of the state during and after World War II. However, there will be a huge political battle. Part of the adjustment will or should involve a switch from debt-funded government pension provision to private pension saving and lower levels of private spending—the figures cited earlier in this chapter make plain this need. People today have been spending up until their retirement at a level possible only by borrowing from the living standards of people not yet born or grown.
But, of course, the level of pension payments is a political shibboleth and moves to reduce pensions will be extremely contentious. Reasonably enough, the cohort of voters who have paid taxes for other people’s pensions and welfare receipts but will perhaps not receive the same entitlements themselves will be aggrieved. In aging societies, politicians will have to be brave indeed to pledge to reduce the pensions bill. The baby boom generation, born between 1945 and 1960 and beginning to retire now, is likely to be extremely vocal about such policies—they used to be known as the Grateful Dead generation, but one analyst has said they will become the “ungrateful undead,” demanding more by way of pensions and health care through their long retirements.18 It is not obvious that governments in Western democracies will have the political will to reduce social and pension spending, even in a slow transition. If this