Global Public Debt – a simple perspective

Global Financial Crisis, round two.  Global Public Debt.  The words on everyone’s lips these days.  I am not an economist, but everyone seems to have something to say, from Twitter to eminent university professors, so why not me?

I Stumbled (literally, on the website) upon this interesting little debt clock and map this morning at http://www.economist.com/content/global_debt_clock.

Global Public Debt - Three Nations Compared

Take a look at the actual map, it is very interesting.  All the VERY red (i.e. in big trouble) countries are the ones we like to think of as being the world leaders or the most advanced civilisations or something equally complimentary.

Of course, in Australia, politicians LOVE to use the debt situation as a way to attack each other.  Looking at the media, it seems that is reasonably common globally. Looking at the figures to the left, we could be a lot worse off than we are.  I am NOT saying this to support the current Federal Government (I have my own personal little battle with that lot), I am simply making an observation about the information as presented by www.economist.com.

I’m a mother and an accountant.  Debits and credits translate into “how much money do I have” and “how much have I spent“.  Yes, I’ve had to borrow, so I have personal debt.  Don’t many of us?  Do I have more debt than I can repay?  No, I don’t (provided I don’t get hit by a bus any time soon and I have insurance against that possibility).

There are so many commas in the numbers to the left, I actually get confused!  Are  we are talking billions, trillions or something greater?  Eight trillion, creeping up to nine, for the USA, depending on which scale of magnitude you use (yes, globally we can’t agree on magnitude).  

Let’s look at the per person debt.  So far, Australia is still, compared to the other two, remarkably healthy, although I can’t say I like how dark pink we are on the map!  I am well aware of how all the economies are intertwined these days, so essentially I consider us rather lucky we aren’t sitting at USA or UK levels.

On top of my own personal debt, I only have to pay off another $11,462 of the public debt.  If I was in the USA I’d have to pay off another $28,350 and I may not have a job, given the unemployment levels in the USA.

I have read a bit about people being up in arms in the USA because the current solution is spending cuts but no increase in taxes on certain groups that many feel should be paying more tax.  Let’s face it, governments get their “income” from taxes (unless the country owns natural resources and generates revenue for the country from those resources).  Countries have budgets, just like any household or business.  Clearly someone’s been overspending!  For a long time! 

This puzzles me.  The USA policy of “fend for yourself” means that they don’t have the same funding of education, hospitals, medications and so on that we do in Australia.  How did they spend so damn much?  What on?  I could read umpteen articles and find a myriad of arguments, as everyone has a perspective.  I’m not going to, because the bottom line is simple to this simple mother.  Spend more than you have, print money you don’t have and guess what happens – you end up in the red.

I remember some years ago, when Bush introduced his first budget, global analysts stating the USA would pay about ten years down the track.  Seems those analysts were not far off the mark.  While it is now hard to find those old articles, I quote from www.economist.com again:

The most important legislation of his first year in office was a $1.35 trillion tax cut that handed an extra $53,000 to the top 1% of earners. At his farewell press conference on January 12th Mr Bush called his tax cuts the “right course of action”, as if they were an unpopular but heroic decision. They weren’t. The budget was in surplus in 2000, and both Mr Bush’s main Republican rival, John McCain, and his Democratic opponent, Mr Gore, also wanted to cut taxes, but by less, so as to pay down more debt and shore up Social Security (public pensions). Mr Bush’s much larger tax cut reflected his, and his party’s, belief that lower taxes restrain the size of government, empower individuals and are good for both growth and Republican prospects.

http://www.economist.com/node/12931660

We all know on a personal level, if we borrow money and have to make repayments, those repayments chew into our disposable income.  If we tighten our belts, we will be OK – if we keep spending at the same rate we were without an increase in money coming in, we’ll end up owing even more.  Is this difficult logic?  What applies in our own households, in our company boardrooms, even to our children’s pocket-money, applies equally to countries.

Some of the poorest countries owe the least.  No-one will lend those countries anything!  Same with poor people – they are not a good risk to lenders, so while they have little, usually they owe little as well.

What will happen?  My crystal ball is in for repairs, sadly, but while everyone is running around blaming everyone else, there is little likelihood of a good solution.  You are up the creek without a paddle, guys, so get your acts together and work in a bi-partisan way to fix the messes you either created or inherited. 

That’s what we pay you for!

Should I pay for your right to have children?

A really cute grandnephew of mine

Of late we in Victoria, Australia have been inundated with either our own elections or election commentary from overseas.  We had our own Federal election in August, followed by the USA mid-terms and now we are in the final stages of the Victorian State elections.  We vote next weekend.  At least we are sensible enough to hold elections on the weekend!

Paid maternity leave has always been a bit of a problem for me.  Essentially the community ends up funding the cost to business.  Replacement staff are needed and this is passed on to the consumer in the prices of goods and services. Perhaps that is a good thing: after all, we do need the next generation and the economy is structured such these days that one income is really not enough, unless you are the CEO of one of our major banks!  So there is an argument for community funding, however indirectly that may be.  I have for years tossed this around in my thoughts against my belief that having children is a personal choice and responsibility.  I acknowledge perhaps it isn’t, totally.  There is a Nigerian proverb, once made famous by Hilary Clinton, that it takes a village to raise a child.  There is considerable truth in that.

Now it seems we want to go a step further.  The incumbant Victoria Premier has annouced a policy of a guaranteed right to return to work, part-time.  Current legislation guarantees only a return to the previous job, which is usually full-time.  This will increase the costs of maternity leave dramatically.  As this is not a look at economics, I will let another quantify the costs to business (as I am sure the opposition will), especially small business which employs the largest number of employees in our economy.

I wonder if people really cost out returning to work at all.  I know years ago my sister and I sat down and worked out all the additional costs related to her returning to work: petrol/travel, office clothes and childcare were just a few of the expenses.  We worked out she would gain about $20 a week.  Admittedly this was quite some years ago (she is a grandmother), she had four children and she had no formal qualifications to earn a high powered salary (such as the bank CEOs).  All the added stress and reduced mother time simply wasn’t worth $20.  Times have changed and the sums may no longer be the same.

What I DO know is that for business this will increase costs, which will be met by everyone – or the business viability will be compromised.  Businesses are not charity institutions, they exist to make a profit.  If they don’t, they fold and people lose their jobs.  How many manufacturing operations have already been moved off-shore due to the cost of labour?  How many call centres are based in India for the same reason?  Those are jobs that Australia has lost.  Yes, I know our unemployment is much lower than, for example, the USA and the UK.  Our economy is stronger.  We need to see it stays that way.

I am not sure this is for the benefit of all.  I see a grab for votes that sells papers and TV time here, rather than a considered analysis of the impact on the economy.  The health of our economy affects everyone, including the new mothers and their newborn babies.

What do you see?