Debt to the rescue
Crisis over. Thanks to generous injections of public money, the banks are fighting fit again: bigger than ever, and even more likely to take the state hostage when the next storm blows up.
Once again it’s expedient for western governments and central banks to sound the alarm on debt. Expedient to raise the spectre of financial failure, temporarily set aside when unimaginable sums had to be paid to rescue Goldman Sachs, Deutsche Bank and BNP-Paribas. Expedient to introduce the notion of profit and commercial practice in areas that had been spared. The problem of debt, exacerbated by the economic breakdown, is being used once again as an excuse for cuts in social security and public services. Endless claims that there is no more money have been a wake-up call for dormant liberals.
Their political revival is gathering pace. In Germany, the deficit will amount to nearly 6.5% of GDP next year (almost double the maximum authorised under the EU stability €24bn ($36bn) in additional tax breaks. The UK Conservatives have undertaken to decrease corporation tax. In France, the right has abolished tax on overtime, established a tax shield for unearned income and reduced death duties since Sarkozy was elected. And it is to abolish the business tax payable to local authorities.
Conservatives were once so keen to balance the books they could even agree to tax hikes. But over the past 30 years, they have deliberately created public deficits in order to stifle any public impulse to intervene. This policy of easy money and reduced revenue is accompanied by alarmist calls for cuts in the cost of the welfare state.
“Reagan proved that deficits don’t matter,” Vice-President Dick Cheney told the US Treasury Secretary in 2002 when he expressed concern about further tax cuts. What Cheney really meant was that deficits don’t necessarily harm those who create them: Reagan was re-elected by a comfortable majority in 1984, despite a three-fold increase in the US deficit during his first term. But their successors are subject to tighter financial constraints, especially when they are suspected of being spendthrift lefties. So, in order to have some chance of getting his healthcare measures adopted, Obama had to promise that they would not increase the national debt by a single cent. Are military ventures ever subject to this kind of condition?
The French government recently reduced VAT payable in cafés and restaurants by two-thirds, a loss of $3.6bn in tax revenue. A few weeks later, to restore the “balance”, it recovered $225m by introducing a tax on compensation paid to victims of industrial accidents. It is clearly a very promising pupil but it still has a long way to go to catch up with Reagan, who slashed taxes on the rich and then, to reduce the deficit he had created, ordered school canteens to count ketchup as a vegetable when assessing the nutritional value of the meals they provided for the kids.
The fiscal counter-revolution to sweep the world started in 1978 in California, where Reagan had once been governor. California’s coffers are now empty (there is a $26bn deficit), so on 17 November, the University of California, with 2,000 staff cuts to its credit, increased student tuition fees by 32%.
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