National Debt and Longtermism
On September 23rd, the U.K. Chancellor Kwasi Kwarteng outlined an array of tax cuts and other economic measures to jumpstart the economy and tackle the growing cost of living. His hope was that an increase in economic growth would result in a less turbulent recession and, ultimately, an easing of the pressure on household and business finances. However, the markets met the measures with less than favorable responses. Immediately after the announcement, the value of the pound dropped to a near 40-year low, and U.S. Treasury Secretary Larry Summers remarked that “[t]he UK is behaving a bit like an emerging market turning itself into a submerging market” and that “Britain will be remembered for having pursued the worst macroeconomic policies of any major country in a long time.” Unfortunately, the bad news kept coming as, early on September 26th, the pound plummeted to a record low against the dollar.
Despite the inherent complexities in national and global finances, one of the most significant criticisms against this dramatic shift in financial policy has been a relatively simple question – who will pay for all this? After all, if you want to cut taxes but still provide public services, the money must come from somewhere. For Kwarteng and the U.K. government, the answer is to borrow. But we’re not talking about a small loan. The U.K. government will borrow £72 billion over the next six months alone. This is in addition to the borrowing it had already planned to do.
Of course, if you want to avoid going bankrupt and defaulting on your loans, borrowed money needs to be repaid at some point, alongside interest. This fact is something which the Chancellor has been hesitant to acknowledge, sidestepping the question when he’s asked. Nevertheless, the matter remains – who will have to pay back this money? The answer is future generations.
Money borrowed today will be paid back, in the form of taxes, by those yet to be born. In other words, the U.K. government is trying to solve today’s financial problems by pushing them onto tomorrow’s generation.
To some, this seems exceedingly unfair. After all, those future generations, who are yet to be born, weren’t the ones who borrowed that money. So, why should they be the ones to pay it back? Indeed, those making decisions about national borrowing – the ones in government positions – face no personal repercussions for their borrowing decisions beyond those shared with everyone else. And while they borrow on their nation’s behalf rather than their own, there’s seemingly a disconnect between financial decision-making and the consequences.
So, ultimately, the benefits of borrowing – increased economic activity, better public services, more generous subsidies – are enjoyed by those alive today, while future generations will be stuck with the bill. And, of course, the prospect of borrowing money to make our lives easier and not having to pay back that debt, as it will be someone else’s problem, makes for a mighty tempting offer. James Buchanan, Professor of Economics at Harris University, summarizes this nicely:
the institution of public debt introduces a unique problem that is usually absent with private debt; persons who are decision makers in one period are allowed to impose possible financial losses on persons in future generations. It follows that the institution is liable to abuse this and overextend its borrowing practices.
So far, I’ve painted a picture in which the arguably reckless borrowing exhibited by the U.K.’s newest government does, at minimum, a disservice and, at most, an injustice to future generations. While an intuitively appealing stance, it rests upon a proposition that might be less than well-founded. Do we, or can we, actually owe anything to future generations? If a government or I take action that, theoretically, harms the interests of someone who doesn’t exist yet, have I done something wrong?
According to Oxford Philosopher William MacAskill, the answer is not only that we can owe things to future generations but that our inclination to think in the short-term is one of our most significant moral failings. As he argues in What We Owe the Future, if we’re to draw ethics down to a simple utilitarian numbers game, where the most ethical actions are those bringing about the greatest good for the greatest number, then not only should we take into account the interest of future generations, but those generations outweigh the interests of those alive today. This is because the number of potential persons yet to be born far outweighs the number of people currently alive.
As such, if we’re committed to a utilitarian ethical framework, then it follows that we should sacrifice our well-being and hamper our interests if doing so could bring about a better life for the multitude of future potential people – you are singular, but your descendants are possibly innumerable.
When made explicit, this idea of acting in the best interest of the yet-to-exist at our expense can sound counterintuitive. But, we’re typically intuitively inclined toward such thinking. As MacAskill writes:
Concern for future generations is common sense across diverse intellectual traditions […] When we dispose of radioactive waste, we don’t say, “Who cares if this poisons people centuries from now?”
Similarly, few of us who care about climate change or pollution do so solely for the sake of people alive today. We build museums and parks and bridges that we hope will last for generations; we invest in schools and longterm scientific projects; we preserve paintings, traditions, languages; we protect beautiful places.
As such, it seems, much like with the motivation to curb climate change or refrain from radioactive waste dumping, that making things harder for ourselves today can be justified, even ethically required, if doing so has significant and material benefits for future generations.
The question, then, is whether the extreme measures Kwarteng’s taken will eventually make things better for the U.K. economy, ideally, benefit not only those alive today but the country’s future overall. According to his supporters, the answer is a resounding yes. Unfortunately, it’s coming from too few voices. Ultimately, only time will tell whether the Chancellor’s gamble will pay off. But if it doesn’t, any short-term gains he may have just secured would almost certainly pale compared to the long-term harms he’s potentially unleashed.