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!

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Education – is it a public good?

Violent protests … a flare is thrown at police Photo: AP

There are many reports everywhere of the protests in London by people against higher fees for education.  I remember when I started my degree here in Audstralia, tertiary education was still free.  Midway through my degree fees and the Higher Education Contribution Scheme (HECS) were brought in.  It is now HECS-HELP.

I remember as a child growing up in New Zealand, students were bonded for a given number of years after completing their degree.   For those unfamiliar with the concept, an example would be a medical student required to work, to use the education, locally for a given number of years, for the country which provided the education for that individual to become a doctor.  Many countries still have bonding.   This is actually my preferred solution to the question of  how much should students themselves contribute to their education. 

I remember attending my economics classes and discussing public goods: what was a public good, what wasn’t.

I am a firm believer that education is something we all benefit from, whether we receive it directly or not.  There is, of course, no question that the individual receiving the education also benefits personally.  There is, therefore, a valid argument that some form of contribution from the individual is appropriate.  Bonding serves that purpose yet still enables those from all socio-economic demographics to further their education.

You are ill, you need a doctor.  Whether you went to university or not, you need medical care.  You need dental care.  The car accident you had last week: you need legal representation.  You go to have a prescription filled, you expect the pharmacist to be adequately qualified. 

Yes, I agree, a degree in macrame perhaps is not so useful to the population at large and some of the “subjects” we read are being offered in American universities simply stuns me.  Perhaps I am merely old-fashioned.  So setting such things aside, for they detract from the central debate, is education a public good?

Here in Australia many students now leave university with a debt to the government.  Thankfully, it is interest free.  Repayments start at an indexed threshold.  Discounts are available for paying extra.

The above newspaper report indicates the UK are proposing quite a hike: The basic level of fees will now climb to £6000 ($9680), with an upper limit of £9000. The current cap is £3290.

Still not as expensive as the USA, but not an inconsiderable cost to a family trying to educate their children.

Every single one of us benefits from education.  Education is something we all need to be provided, whether we, individually, are the recipients or not.

Education must not become something that is only available to the rich.  If it does, such nations will become, over the years, nations no different to those third world countries where education is a luxury, not a right.   Fields of expertise, including science, will stagnate, constrained by lack of fresh ideas, fresh approaches, fresh blood.  All of us will suffer.

Eduction is not a luxury, it is a right.  It is a public good.  It should be available to all those, rich or poor, who have the intellectual ability and the desire to become a doctor, dentist, lawyer, geologist, pharmacist: the list goes on.  We all, every one of us, receive the benefits of education therefore we all should contribute. 

Education must not become available only to the rich.  Our societies will be the worse if such becomes the norm:  look at those countries where it IS the norm to see our possible future.

Edit December 12: Related to this I have been participating in two different discussions about education being compulsory in relation to those students who do not want to be at school at all.  That is a question for another day.  This entry relates only to the question of access to education.