Why Government Debt is Immoral

Debt. We’re all familiar with it. Most of us have used it to finance a home, start a business, purchase a vehicle or pay for a post secondary education. Debt, if used appropriately, can play a positive role in building personal wealth.

So if personal debt can be utilized responsibly, what of government debt?

Many so called ‘progressive’ politicians will argue that government debt has a role in building society. Barack Obama seems to have wagered his presidency on it. Canada’s Federal Conservatives felt forced to take on debt in order to save their minority government from the leftists and their demands for ‘stimulus spending’. And of course, our own Progressive Conservative Government in Alberta, without any real threat from the political left, repealed Ralph Klein’s balanced-budget and no-debt laws in favor of record deficits and a return to debt-financing.

Governments around the world are learning the hard way that massive Keynesian spending and debt financing does nothing to spur sustainable economic recovery; in fact, it actually exacerbates the original problem of too much consumer debt. But now, instead of banks and businesses being at risk of insolvency, entire countries are at risk of economic collapse, including Greece, Spain, Portugal and even the United States.

The world’s ‘stimulus’ spending binge has resulted in short term gain for long term pain.

Which brings me to my main point…government debt is almost always wrongheaded and immoral. Let me give you 3 reasons why.

Reason #1: No Personal Accountability

There is a difference between personal and government debt. If someone defaults on a personal loan (i.e. a mortgage, a car loan), it is generally the defaulting individual who pays the price (i.e. loses his house or his car back to the bank). Obviously, the lender of the money is also affected, however, this risk is generally known to the lender at the outset and he will usually secure that loan against another asset of value. In other words, personal debt has personal consequences.

Government debt is entirely different. Governments who choose to go into debt, in effect, place a burden of debt on society as a whole. There is no personal debt liability on Ed Stelmach or Ted Morton for this year’s $7.6 billion deficit and the billions in debt that helped finance it. These two individuals will be long gone with their golden parachutes long before the debt is paid. It will be Alberta taxpayers who are left holding the bag.

Reason #2 – Intergenerational Robbery

According to the CIA’s World Factbook, Canada’s total public debt (federal, provincial and municipal) is roughly $1.2 trillion. That works out to roughly $35,000 for every man, woman and child living in this country. But that’s not the whole story. Our welfare state is such that only one-third of Canadians actually pay any income taxes at all. So that means, the average income-tax paying Canadian actually owes about $52,000 in government debt plus interest over and above any other debts owing.

However, there is a big difference between this debt (which keeps on growing) and personal debts. When each of us passes away, so too do our debts. What remains of our estate pays off any obligations owing. Government debt doesn’t work that way. When we pass on, that $35,000 passes on to the next newly born infant. Put another way, the day I stop paying income taxes, that $52,000 in debt passes on to the newest college graduate.

Reason #3 – The Legacy Myth

If a billionaire passed on and left you his mansion, you might be pretty excited; that might change if you learned that the mansion was worth less than the outstanding mortgage (with a $5000 per month payment), that it cost $2000 per month just to keep the lights on, and that there was a lien prohibiting you from selling the home even if you wanted to.

Obviously, this wouldn’t be a great legacy to leave anyone. Well, progressive politicians, like the ones in our provincial PC Government seem to think it is. This is what you hear them say: “well, it’s ok to spend all this money and take out all this infrastructure debt because we’re leaving a legacy for our children that they can use to be successful.”

Of course we need infrastructure for our communities; no one disputes that. However, just as the mansion in the above example is unaffordable to its new owner, so too can the over-build of government infrastructure burden current and future taxpayers. Bridges need upkeep, schools need maintenance, and roads need repaving. Debt and interest payments for large projects will eventually come due, potentially well after the need for the roads or buildings in question has dwindled. And remember, it’s not like our kids can sell off the road or bridge when it’s not needed anymore. Public infrastructure is almost always a depreciating asset with no available market to sell it to. Let’s remember this when our politicians start banging the drum for massive infrastructure spending in the name of stimulating the economy.

Governments should always live within their means. They should be able to distinguish the difference between what is truly critical from what would simply be nice to have. They should know that leaving a legacy of economic freedom from debt is a far better gift than leaving a lifestyle our children can’t afford.

As parents, we try and teach our children to live this way. Perhaps it’s time to teach our political leaders the same lesson.