Causes of Fiscal Irresponsibility in Modern Times
Whilst the collapse of the Bretton Woods system in 1971 may have heralded a new era of fiscally irresponsible government spending, we still need to resolve the question of why our governments are so complacent in their attitudes towards ever growing debt levels. After all, governments of a hundred years ago were very serious about achieving, and maintaining, a balanced budget.
The original fundamental change in attitude dates back to the inception of Keynesian economic policies i.e., policy ideas introduced by the British economist John Maynard Keynes. The big change with this approach, following the hardship of the Great Depression, was that governments could, and should, act to keep their economies growing along a stable path.
Furthermore, they should maintain this stable path by actually increasing spending during economic slowdowns, in order to boost aggregate demand. This, of course, would entail running up large debts in order to pay for that extra spending at a time when tax-receipts would be declining because of the slowdown.
The point that our modern governments seem to have overlooked is that Keynes also intended that, during economic boom periods, the debts that were allowed to grow during the slowdown should be paid off so that there would be a balanced budget in the long-run.
Historical experience has proven that whilst it is all too easy to run up debts during the slowdowns, it is far less easy to repay them during the good times. As Milton Friedman famously quipped: "Nothing is so permanent as a temporary government program". The problem is that once these programs are initiated, it becomes politically costly to stop them, and governments place the importance of votes above all else.
Three Specific Problems that affect Government Spending
I'll close this article with some specific issues that have derailed fiscally responsible spending in the west for many years, and threaten to continue doing so for the foreseeable future:
The globalist agenda has allowed the 'offshoring' of a huge proportion of our manufacturing industries. Many have either relocated into Asia where cheap labor costs are abundant, or they have gone bankrupt in the face of competition from those cheap Asian producers.
One of the effects of this is to provide very cheap imported goods for domestic consumers and, whilst that is no bad thing, it has contributed to keeping overall inflation levels low whilst other domestically produced goods and services have become much more expensive.
Were it not for the falling prices of the imported goods, inflation would have risen significantly and thereby forced our governments to slow the economy down by cutting its spending and raising interest rates.
What has actually happened is that, as more and more goods are imported from overseas, huge numbers of our jobs have been lost, and many more people that were once taxpayers have become dependent on state benefits - meaning that government spending has increased whilst tax receipts have fallen.
The gap in funding has been covered by increased borrowing, in large part from the foreign manufacturers who have replaced our domestic manufacturers. The result is that our national debt has sky-rocketed. Fiscally responsible governments would never have allowed this, but governments fueled by an insatiable globalist agenda have welcomed it.
Spiraling Education Costs
With the loss of traditional industries like mining, ship-building, manufacturing, and so on, the skills necessary to gain well-paid employment in the growth industries usually require at least an undergraduate degree from a reputable university. Those universities have competed to gain a growing share of the student body by offering world-class facilities of all types, which has massively increased the cost of getting an education.
Worse still, the quality of the actual tuition has been of dubious benefit to the student.
Add to this the fact that there appears to be a political agenda to push as large a proportion of young people into universities as is feasibly possible... presumably so that they don't show up on the official unemployment statistics.
Getting young people to university may be a fine thing, but doing so at a cost that will cripple them financially for the rest of their working lives makes little sense, especially since the actual demand for graduate employees has not kept pace with the supply. Many graduates, who have been encouraged to rack up huge personal debts, have had to settle for entry-level jobs after graduating - jobs that require only a minimal level of basic skills.
An Aging Population
For many decades the birth rate in the US, the UK, and most other developed economies has been declining. At the same time there has been some increases in human longevity, even whilst a huge and growing proportion of our population has become more and more metabolically unhealthy.
Obesity levels are sky-high and growing, with diabetes and pre-diabetes growing in tandem.
The end result of this process is a much larger proportion of the population that is either retired or too ill to work. This has had obvious consequences for the government coffers, which are now stretched to breaking point.
At the same time, welcome improvements to the body of scientific knowledge in terms of creating new treatments and medicines, have created extremely difficult choices for the government in deciding which healthcare services can be provided via general taxation, and which cannot be provided.
Related to this is the problem of state pension provisions. The retirement age in some western countries has been pushed back in recent years, but the ratio of people in work to those who have retired has increased, and it looks set to continue doing so.
A fiscally responsible government will need to face up to this issue at some point, and difficult choices will need to be made that will not be popular with voters. Time will tell whether or not this will be done in a timely manner, but the omens are not good.