The Nexus of Global Debt, Government Responsiveness, and Economic Equity: Paving the Way for a Resilient Tomorrow
This is actual lives we are talking about, not everyone has the same priviliges
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Only by looking back can we connect the dots and truly understand our present state. The future, in turn, can only be forecasted based on patterns from the past. Time progresses, and its unfolding reveals the consequences of our actions and choices.
One misstep in history can echo through generations, burdening children with the debts of their ancestors. Despite numerous attempts, we have failed to create an ideal political system, and such perfection may be unattainable. Each political system rises and eventually falls, while new ones emerge, driven by their ideologies, seeking to influence the world.
From the perspective of those advocating for these systems, they believe their ideals will benefit humanity. However, these very same perspectives can be viewed negatively by those who do not share similar circumstances.
Ultimately, the understanding of our collective history and the awareness of the potential consequences of our decisions are crucial in shaping a better future for all.
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In the end, it all boils down to freedom and liberty which every human craves. The ability to live without negative interference, the ability to earn a just livelihood, and the ability to transfer your ideas effectively. That does sound like a utopia. This is because as humans we don’t stop at merry lives. We find adventure in pain. Everyone craves a stable life but one thing is for certain in the global economic and political system all of us have played a part in brewing, and that is uncertainty. Not understanding the implications of a policy in the long term leads to this uncertainty and the repercussions can be felt far across generations.
Thank God we aren’t borrowing from Martians, yet!
Debt is surely a nuisance. On an individual level, everyone agrees with that notion. However, the global debt has risen to over $300 trillion and some deem it as “not a big deal”. Well, they might be partly right. You see, economics is not as simple as borrowing from someone and returning which settles the records. It involves intricacies that are unfathomable for an individual mind. It involves the interactions between large-scale societies, so science gets complex fast. So don’t be startled by the enormity of the figure.
As a citizen of the planet Earth, what does it exactly mean to have a global debt of over $30 trillion? It is not like every child born is indebted from the start, or is it? Well, let’s consider it on the individual level. Let’s say you take money from someone to buy a new mobile phone. Later, when you have enough money, you pay him back and you get to enjoy the mobile phone in the time in between. However, when we consider debt at a global scale, this is the money that is the liability for someone and the asset for the other. One company displays it as an asset on their balance sheet whereas the other marks it as a liability. In the end, humans owe humans so technically it is not that big of a problem if debt increases too much. In the end, business has to be conducted and debt has to be restructured if not paid back. As a race, it is not detrimental at the global scale whereas at national levels, it might be a thorn that is stinging like never before.
This debt is in the form of government, household, and business debt. Including financial institutions will account for the debt restructuring. The government uses the extra money instead of taxes to fund different public projects to cater to the needs of its citizens. Household debt is used to upgrade the lifestyle of individuals and business debt is used to fund a project or buy back the shares of the company. As we can see here, debt helps stimulate the entity and bring in more growth opportunities. Now, this debt has to be paid back so every entity must have earnings. This can be recorded as the GDP.
Calculating the GDP based on how much of a product is produced might be arduous in the sense that every production line has to be accounted for. Instead, economists rely on the factor of spending to measure the GDP. This includes the output plus the demand plus the investments as every product produced by an industry will most likely be consumed. Hence it enters the market and becomes a part of how much something can produce.
By the looks of it, it seems as if we are borrowing from the future to satisfy our present needs. Everything is okay when this stimulus is used for forward-looking and beneficial projects but the dilemma that we are facing today is a result of political interventions and misallocation of resources. That is troublesome.
The government in all its Grandeur
We go through natural cycles of boom and bust primarily because the debt pileup makes us worried about our future. A phase where tighter monetary policies reign supreme is an outcome of the loose stimulus that has been rampant before. When debt increases to a large amount, people start worrying about repaying it which leads to a halt in excessive spending. This is where the government comes in which must work in everyone’s best interest to maintain a critical balance to better cater to the savings and expenditure attitude of people. When debt increases, the government must enact policies to increase taxes and reduce spending to stop the debt from spiraling. On the other hand, if debt is at a low level, the government must decrease taxes and spend more to prevent the economy from stalling.
Now that the government has taken the baton into its own hands to maintain order in the economy rather than allow the free market to decide for itself, it must be free from biases.
When debt is taken on, it is not necessarily a bad thing. There is good debt and bad debt. The one where future growth is imminent and the capital is used to fund projects that may prove fruitful in the long term is considered good debt. The debt taken to serve political needs and short-term fixes is bad debt.
When the House of Cards topples
All has been going smoothly. Poverty has been reduced, employment is better and public spending is optimal. Then comes a shock to the economy, the COVID wave. What seemed to be a form of prosperous growth shook everyone and lead to desperate measures. This is where the government must have come in with all the saved resources to be better put to use in times of turmoil. However, most governments across the globe responded to the crises by providing free money. Now, everyone knows free money leads to gambling. This is what happened in the aftermath of the COVID crisis.
What has been seen as a result of tumultuous times is that the rich have gotten richer and the poor poorer. The rise of inequality and poverty has led to the masses thinking about the norms they have been made accustomed to before their present worrisome situation. This wealth gap has come as a result of unproductive spending, malinvestments, and the free money distributed among people. It can be said that the free money that has been given freely in the times of COVID has found its way into the traps set up by rich people who are there to capitalize on the opportunity. It is not that they are necessarily evil, but when they see an opportunity, they are sure to dive in.
Money in the hands of the rich might also be regarded as a good thing lest it is used to set up more industries or create more employment opportunities to better diversify the economy. If it is not spent, then it becomes a problem. This is because the economy comes to a halt. The government, here, should ensure that investment opportunities be made to allow capital circulation across the economy.
The Free Market as the Solution
The free market proponents will say that none of this has had happened if the government has just stayed out. However, this might not be the solution. This is because not everyone has the conditions in which his or her entelechy is completely recognized and harnessed. This is the point where he or she falls prey to doing satisfactory work rather than contributing maximally to the economy. Public spending is necessary to keep these citizens afloat for them to prove a better human resource in the long term. When it comes to the people’s survival, it is not a game of 1s and 0s where the underperforming one can be annihilated.
People have desires and expectations. People have a sense of inferiority when the governmental authorities stash them from their ease. Like a railroad going to an area not proving profitable for the operation. However, it provides a source of livelihood for those living in that backward area. Instead of focusing on its removal, why not create a project somewhere else to fund this one or come up with an innovative solution to better cater to the people’s needs?
Consider Cobalt, a mineral of which two-thirds of the supply comes from the Democratic Republic of Congo. It is used in many electronic devices primarily your mobile phones and the electric vehicles that boast a green transition. In Congo, there is a capture of the market of Cobalt by many countries especially the Chinese which enforce unfair embargos on the locals and don’t give them the actual value for their work. Many people choose mining as a profession because of a lack of awareness and the lack of job opportunities. Hence, this creates an unjust system for the locals and living conditions that are far backward than the present level of progress. Their health deteriorates massively and pollution has deleterious effects on the crop produced in the country. Cobalt is cheap there so instead of all the capitalists exploiting the land and people for their profits, why not impose regulations to better facilitate the economy of Congo as well? The large amounts of profits that companies like Apple, Huawei, Samsung, and other mobile phone manufacturers rake in should be accountable for the calamities people face at all points in the supply chain.
No government is not the solution. Better management and effective government spending are.
Reshaping Government Spending
Our lifestyle grows exponentially while our income trails back linearly. This is a dilemma for every household. Consider the government as another such household that has to manage its expenses and income and be answerable to the members of the household. Will it spend more and go into debt? Only if it knows that he will make it up in the long term. But what if it puts the house on mortgage, gambles on risky assets, and props up money injection to his favored party? The house will crumble and the foundations which have been strongly built will start to deteriorate.
Similarly, when a government is driven by political motives and the interests of only a few people, it fails to recognize the long-term effect of a policy or decision over the masses. This leads to many social problems such as poverty, unemployment, and inequality all of which are extremely arduous to eradicate once infected.
Hence eliminating government spending, neglecting a large chunk of the population, and enacting policies of control is not the solution.
A stable government with prudence in spending and saving is a fundamental principle. Stick to that!