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National debt

 

Everywhere in the world, states are indebted. Since the 1970s, national debt levels of Western countries in particular have had a tendency to rise. Many states face budget deficits year in, year out. A budget deficit means more money has to be borrowed, increasing the national debt.


Why states should not create debts

 

There are three main reasons why states should not create any debts at all:


  • National debts that aren’t repaid in one or two decades, are passed on to the next generation: they end up paying for what we now consume.
  • State expenditures are mostly to do with consumption. Every economic text book tells us that borrowing money for consumption is unwise.
  • Ever increasing national debts are dangerous because there comes a moment, even for the most solid states, when financial markets start to panic. When national debts become too large, the markets don’t believe that debts will be repaid, and they demand (very) high interest rates to cover the risk.

 

Why do states borrow?

 

The fact that national debts in the West have a tendency to keep going up, indicates that we’re dealing with a structural problem. States simply have taken on too many tasks. Consequently, they don’t succeed in financing them through taxes, already high in Western countries.

 

Tasks such as education, culture and health care should not fall to the state, but should be part of an independent cultural life that is financed largely by gift money. States should stick to their core task – determining rights and duties and making sure they are complied with – and they should not have the presumption to think, for example, that they know better than teachers and pedagogues what a group of school children really needs.


Sufficient gift money

 

If we had an independent cultural life that would carry out the tasks mentioned, financed through gift money, then states wouldn’t have to borrow anymore and taxes could be significantly lowered. There’s enough gift money to fill the gap. As shown by leading economists such as Ben Bernanke and Paul Krugman, the world-wide financial crisis was essentially caused by a global saving glut. Much more loan money was available than companies needed for their investments. In other words, a huge amount of saving money remained unused. What happened to that money?

 

States, amongst others, borrowed from those savings surpluses. Because of the global saving glut, interest rates fell to historic lows – after all, the supply of money exceeded demand – and it was attractive for states to borrow.

 

The saving glut should have been gift money, as these funds could not be lent out for meaningful investments. The only way to do something meaningful with such a money surplus, is to donate it to people or institutions which do not turn it into economic returns, but achieve progress and benefits in social, cultural or development areas.


And so we’ve come full circle. If states get rid of tasks that really belong in the realm of cultural life, then they don’t have to borrow anymore and taxes can be significantly lowered. This will also free up more money for cultural life.

 

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