We will need decades of austerity, not years

As we head towards the 2014 Budget, some commentators are worried that we will need a few years more austerity. They are wrong: we will need decades more austerity.


Government after government in almost every country in the world has piled up future commitments without setting aside any funds to meet those commitments. This is the characteristic of so-called pay-as-you-go pensions and health provision. The working generation goes to the ballot box to vote itself pensions and health entitlements without putting any money aside to meet these future obligations. Instead, the next generation of workers is expected to meet the cost, just as today’s elderly expected to receive their pensions and healthcare from the taxes of the working generation that followed.


This Ponzi scheme works as long as the birth rate is high enough to produce enough taxpayers, life expectation does not increase and the cost of providing healthcare does not continually outpace economic growth. Unfortunately, none of those three conditions have been met and we are in deep trouble.


What is true in Britain is true in almost all developed countries. Indeed, in many countries – perhaps most notably the US – decisions have been taken over the last decade that further increase obligations to the older generation. For example, Presidents George W. Bush and Obama have raised medicare entitlements at great potential future cost.


When you add up all the unfunded spending promises to future generations, the numbers are breathtaking. The calculations are shown in the IEA’s latest publication The Government Debt Iceberg. The reason for the title is that these government liabilities, which accumulate without any proper accounting, are about six-to-seven times the size of the explicit government debt that we all fret about so much. That is in line with the proportions of an iceberg that you find above and below the water. It is the bit below the water that is dangerous. The government debt that George Osborne will focus on next week is just the accumulation of all the past government borrowing.


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If governments had to look forward in their accounting – like companies do – the numbers would be shocking. For example, if the US were to close its fiscal gap and set tax rates so that in the long-term it would meet all its future spending without being in debt, it would have to more than double existing Federal payroll taxes.

The situation in the EU is worse as the number of workers per retiree is projected to fall below two by the next century. In the UK, for example, to balance the books over the long term, health and social protection spending will have to be cut by one half compared with current plans or taxes increased by a staggering 14 per cent of national income. Of course, increasing taxes from 38 per cent to 52 per cent of national income will simply be impossible without choking off economic growth and actually reducing tax revenues.

In reality, our politicians are likely to impose both tax increases and spending cuts – though the latter would be preferable. Hopefully austerity will be combined with radical policy change to allow people to make their own funded provision for health, long-term care and pensions. Some reforms are already in train, such as raising the state pension age. Other reforms – such as the triple lock on pensions – make things even worse.

We have never been in a situation like this before. It is quite possible that we will not find our way through without serious social breakdown and/or mass emigration of the most mobile and productive people. There aren’t many countries for them to go to that do not have the same problems – they could try Estonia, Australia, Chile and Switzerland; but it is a short list.

Inflation and faster economic growth will not get us out of these problems because many of the expenditures are related to inflation and, to some extent, to growth itself. Expectations of, for example, better healthcare will also rise if the economy grows. Indeed, unless there are radical cuts in government spending, it is highly likely that there will be little economic growth in the coming decades in any case.

The calculations published in The Government Debt Iceberg are not some irrelevant machinations of US boffins trying to frighten us into reducing the size of government. These numbers are compatible with other work produced independently and using different methods. The King’s Fund, for example, has estimated that health and social care could consume nearly one fifth of national income in 50 years’ time. When you add on rising debt interest and pensions costs, such spending commitments look pretty scary.

We might get lucky and innovate our way out of some of these problems. Past innovations have raised the cost of healthcare; future innovations might reduce it. However, the basic message is that systems of financing healthcare and pensions in the last 50 years were flawed. We will pay the price over the next 50 years. We should reform these systems with great urgency.

Philip Booth is editorial and programme director of the Institute of Economic Affairs and professor of Insurance and Risk Management, Cass Business School, City University

More for the delusional spend spend spend lefties. We have already spent spent spent!!!!

it does not surprise me one bit, you can see day to day how much people are struggling to just cover the basic costs of living..

Oh anybody with an ounce of intelligence knows this.

Experts say we haven't even bothered with austerity - continuing to borrow to give away to foreign countries isn't austerity at all.

BigAndy9 wrote:Oh anybody with an ounce of intelligence knows this.

Experts say we haven't even bothered with austerity - continuing to borrow to give away to foreign countries isn't austerity at all.

I couldn't agree more. We have mortgaged our childrens future to enjoy a more comfortable life today. Such is the treachery of politicians particularly those on the left who suggest we can keep on spending.

Mind you they are ably assisted by the gullibility of those who think you can have a free ride.

Austerity is economic pseudoscience and has actually been proven not to work -- not surprised that its supporters (who tend to be the people who think that the "lazy, non-white, non-Christian" type are the ones most hurt by austerity) are now claiming that it hasn't even been tried yet.

What they actually mean is, we're ok and there are some poor folks still have clothes on their backs and food in their mouths, we haven't wiped them out yet. Let's make sure they are so ground down they will accept anything!

Ben_Reilly wrote:Austerity is economic pseudoscience and has actually been proven not to work -- not surprised that its supporters (who tend to be the people who think that the "lazy, non-white, non-Christian" type are the ones most hurt by austerity) are now claiming that it hasn't even been tried yet.

I see we have run out of money by unfunded commitments made years before and that's Psuedoscience???!!

Unfunded commitments aren't some RW conspiracy they are a reality which is very worrying to anyone with a modicum of common sense.

Strange you argue that we need to do something about the damage wrought to the ecology of the planet by man and decry detractors but when faced with similar actually more compelling arguments for real debt you change tac.

Still it's your forum so you can make it up as you go I suppose.

You can't borrow forever the USA will face that reality soon. There is a cliff ahead.

:-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:cawg:-: 

kevins58 wrote:

Ben_Reilly wrote:Austerity is economic pseudoscience and has actually been proven not to work -- not surprised that its supporters (who tend to be the people who think that the "lazy, non-white, non-Christian" type are the ones most hurt by austerity) are now claiming that it hasn't even been tried yet.

I see we have run out of money by unfunded commitments made years before and that's Psuedoscience???!!

Unfunded commitments aren't some RW conspiracy they are a reality which is very worrying to anyone with a modicum of common sense.

Strange you argue that we need to do something about the damage wrought to the ecology of the planet by man and decry detractors but when faced with similar actually more compelling arguments for real debt you change tac.

Still it's your forum so you can make it up as you go I suppose.

You can't borrow forever the USA will face that reality soon. There is a cliff ahead.

Sure there is, they've been saying that for 50 years now! What I want to know is, who will be the bonehead to call in his/her nation's debts and trigger a global depression?

Sassy wrote::-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:cawg:-: 

Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse  Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse


More words.

Ben_Reilly wrote:

kevins58 wrote:

I see we have run out of money by unfunded commitments made years before and that's Psuedoscience???!!

Unfunded commitments aren't some RW conspiracy they are a reality which is very worrying to anyone with a modicum of common sense.

Strange you argue that we need to do something about the damage wrought to the ecology of the planet by man and decry detractors but when faced with similar actually more compelling arguments for real debt you change tac.

Still it's your forum so you can make it up as you go I suppose.

You can't borrow forever the USA will face that reality soon. There is a cliff ahead.

Sure there is, they've been saying that for 50 years now! What I want to know is, who will be the bonehead to call in his/her nation's debts and trigger a global depression?

I'm not on about putting on the brakes overnight I'm on about paying our way and funding future pensions. That is responsible it is irresponsible to leave nothing but debt behind.

You assume that you can finace the debt without paying the price at some point. That is simply delusional.

@kevin
debt is artificial, If need be we can cancel it with a revolution (as has happened periodically since the Roman era).
Pollution, deforestation, emptiness of oceans is real. Future generations would much prefer a liveable planet and have to deal with the Greedy rich the present has failed to deal with.
Debt is Irrelevant as the game of monopoly we call economics is almost at it's natural conclusion (one can argue it has been artificially stretched by the current power holders) and the Revolution will replace the pieces, therefore it is more important to keep the board in reasonable condition to return them to.


And talking about future pension you can tell your old. most people in Gen Y expect to be soylent greens if we don't fix stuff (and we cant fix it with out spending) Pensions what a laugh         as if that is an option with the current power holders.

We shouldn't even talk about debt in terms of its sustainability in the first place, since the entire topic of debt sustainability is a masquerade to hide the true agenda. The only people who ever complain about debt do so because they advocate cutting benefits, which they see as going to people they hate.

That's why you will never, ever see anybody who claims to be concerned about debt sustainability advocate higher taxes on the rich.

Drinky, you live in the dark ages. You subscribe to a 17th-century economic theory.

You have no idea about macro-economic theory. You know nothing about the ideas of economic expansion, inflation and depression. Your understanding of those ideas is....ugh, depression bad...inflation, wtf...expansion, like my waist line.

Not worth talking to you.

Original Quill wrote:Drinky, you live in the dark ages.  You subscribe to a 17th-century economic theory.

You have no idea about macro-economic theory.  You know nothing about the ideas of economic expansion, inflation and depression.  Your understanding of those ideas is....ugh, depression bad...inflation, wtf...expansion, like my waist line.

Not worth talking to you.

This from the man who stated that the French were doing a better job than the British!! Hmmmm hows that working for you comrade?

We shall be in the Dark Ages if you think that spending can be unlimited within a finite timeframe that does not impact upon future generations. You are deluded if you think that we cannot set aside monies for pensions and expect future generations to pay. Clearly you think Govt should be one big Ponzi scheme.

The US will face that cliff, and soon, see how much your pontificating will help then. In the UK we have so much on book debt but in addition hundreds of Billions of book. The Public sector pensions schemes alone present a huge challenge. No doubt you will say print more money it's always a preferred strategy of the left. Sooner or later as Greece learned it can't survive on illusions.

We shall see.

kevins58 wrote:

Original Quill wrote:Drinky, you live in the dark ages.  You subscribe to a 17th-century economic theory.

You have no idea about macro-economic theory.  You know nothing about the ideas of economic expansion, inflation and depression.  Your understanding of those ideas is....ugh, depression bad...inflation, wtf...expansion, like my waist line.

Not worth talking to you.

This from the man who stated that the French were doing a better job than the British!! Hmmmm hows that working for you comrade?

We shall be in the |Dark Ages if you think that spending can be unlimited within a finite timeframe that does not impact upon future generations. You are deluded if you think that we cannot set aside monies for pensions and expect future generations to pay. Clearly you think Govt should be one big Ponzi scheme.

The US will face that cliff and soon see how much your pontificating will help then. In the UK we have so much on book debt but in addition hundreds of Billions of book. The Public sector pensions schemes alone present a huge challenge. No doubt you will say print more money it's always a preferred strategy of the left. Sooner or later as Greece learned it can't survive on illusions.

We shall see.

brilliant post..

kevins58 wrote:

Sassy wrote::-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:bravo:-: :-:cawg:-: 

Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse  Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse


More words.

      

You had an orgasm typing that didn't you?     

Sassy wrote:

kevins58 wrote:

Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse  Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse Fatarse fatarse fatarse fatarse


More words.

      

You had an orgasm typing that didn't you?       

No I simply copied and paste a couple of extra times. You know the thing you do. Anything to actually say about the subject matter or are you still contemplating growing that arse of yours.

Drinky, keep it up PLEASE, because the more you do it, the more you prove who you are.

And yes I rest a lot, having just finished my second round of chemo for CLL and waiting for the results of a blood test, hoping I won't have to have another round, I'm allowed, it's doctors orders.

What's your excuse?

Sassy wrote:Drinky, keep it up PLEASE, because the more you do it, the more you prove who you are.

And yes I rest a lot, having just finished my second round of chemo for CLL and waiting for the results of a blood test, hoping I won't have to have another round, I'm allowed, it's doctors orders.

What's your excuse?

I haven't got a fat arse thankyou. I am not neither have I ever been Drinky on Newsflix I am Kevins58 the name is plain for all to see. I have heard so many untruths pass your lips over the years that I'm sorry if I find this current news hard to swallow. If it is true I wish you a speedy recovery. I'm not that unkind I would wish you to suffer if you are genuinely unwell.

That said having extracted my good wishes are you planning to address the post and not the poster.

kevins58 wrote:

Sassy wrote:Drinky, keep it up PLEASE, because the more you do it, the more you prove who you are.

And yes I rest a lot, having just finished my second round of chemo for CLL and waiting for the results of a blood test, hoping I won't have to have another round, I'm allowed, it's doctors orders.

What's your excuse?

I haven't got a fat arse thankyou. I am not Drinky either I am Kevins58 the name is plain for all to see. I have heard so many untruths pass your lips over the years that I'm sorry if I find this current news hard to swallow. If it is true I wish you a speedy recovery. I'm not that unkind I would wish you to suffer if you are genuinely unwell.

That said having extracted my good wishes are you planning to address the post and not the poster.

when they cannot counter your argument they will try to call you a multi or something its their Mo...