Introduction: Debt, Deficits and Austerity

A Citizen's Guide

In the second stanza of Lewis Carroll's The Hunting of the Snark, the Bellman tells the rest of the ship's crew, "I have said it thrice: What I tell you three times is true." This propaganda technique of repetition establishes familiarity then credibility even to obvious contractions of reality. The austerity narrative - governments should spend no more than their tax incomes - provides powerful proof of the effectiveness of repletion to give myth credibility.

Central to the general acceptance of myths about government budgets is lack of basic understanding by citizens of public spending and taxation. Lack of understanding becomes misunderstanding under the assault of propaganda and provides fertile soil for converting myth into conventional wisdom (a term coined with analytical insight by the US economist and diplomat John Kenneth Galbraith). Knowledge provides the tool to expose myths as the non-credible parables they are, to reveal conventional wisdom as myth no matter how frequent the repetition.

Informed citizens provide the foundation of democratic society. Participating through democratic institutions, we the citizens facilitate effective government. Understanding government finances is central to that participation. Participation creates engagement, so that the citizen becomes the active subject of policy discussion rather than the passive object.

Ill-informed citizens fall prey to cynicism that undermines democratic participation by inducing alienated passivity. Through fostering the ignorance that generates cynicism, governments can rule on behalf of the special interests rather than for the general welfare. Governments serving the few neutralize and undermine democracy, claiming to bring order and stability to replace disorder and disarray - disorder and disarray typically generated by their special interest policies.

In both Europe and the United States, few public issues are as consistently misrepresented as government budgets. The misrepresentation facilitates policies that undermine rather than enhance the public welfare. To defend special interests, governments use these misrepresentations to justify policies that weaken the ability of the public to participate as citizens. Central to that weakening is the superficially reasonable proposition that, complex as it is, public finance should be left to experts. The final chapter of this book inspects this proposition and rejects it.

Misrepresentation and bogus appeal to experts distort public debate on how much governments should spend, how that spending should be funded, and who should benefit. As a result, a very large part of public discussion over government spending and tax does not inform. It misinforms and leaves citizens knowing less, not more, accepting myths as if they were common sense. Polemics marshal the language of myth to combat the wisdom and insight that facilitate democratic decision making.

A substantial part of the public hesitates from engaging in discussion of government budgets because of an imagined lack of expertise. Citizens retreat from what they believe is a complex subject, offering the plea "I am not an economist," and "Economics is too dull and difficult to try to understand." These laments result from the inculcation of misinformation through extensive and pervasive propaganda. Public-sector spending and taxation are overwhelmingly about politics and only secondarily about economics. Yet many politicians and much of the media discuss public finances as if the reverse were the case. Debates over political priorities are too frequently treated as if they were a technical matter for experts. The need for expertise in a democratic society is important and its role is clear - experts advise, politicians decide, and citizens elect.

This book takes the reader past superficial rhetoric for a straightforward discussion of "fiscal policy" - public spending, taxation, the balance between the two ("surpluses" and "deficits"), and the concrete function of all three. Reading this book requires no economic knowledge. I taught economics for over forty years, spending as much time dispelling the misleading conventional wisdom of the profession as I did presenting how economies actually work.

My commitment to non-technical language might appropriately begin with a bit on "jargon-busting" on budget language. The word "fiscal" has its origin in the Latin word fiscus, meaning a bag, basket or purse for holding money. The word came to mean the Roman state treasury. Thus, "fiscal policy" has a simple meaning: management of the public purse.

With jargon banished, readers following my explanations require only the commitment to think logically and to link logic to what we observe, attributes common to all citizens. There is no mathematics here, and the arithmetic hardly goes beyond adding and subtracting. A problem we repeatedly face is that the words used in debates over public spending and taxation take on so much ideological baggage that they represent barriers to understanding. Foremost among these are "deficit" and "debt," whose meanings, measurement and policy significance are distorted by mutually reinforcing misrepresentations.

In Dutch and German the word for "debt" also means "guilt," which provides insight into the decades-old austerity policies of the German Ministry of Finance, as well as the deficit and debt rules in the treaties of the European Union. In English, "debt" and "guilt" are different words. Nonetheless, many English-speaking politicians, not least the former UK Chancellor George Osborne and former Republican Congressman Paul Ryan, use the former to imply a heavy dose of the latter. In some cases the transubstantiation of meaning brings memories of "Newspeak" in George Orwell's 1984. A clear example is the use of the benign "savings" for the malign "cuts in public services" and the pejorative "black hole" for the neutral "revenue shortfall."

This book uses Citizenspeak rather than neo-Orwellian Newspeak to dispel rhetorical fallacies and lay the basis for informed public debate among knowledgeable citizens. This is a book by a citizen for other citizens aimed at demystifying public spending and taxation. To achieve that demystification we directly confront the myths that obscure understanding of what our government does. Foremost among these is the "living within our means" cliché (Myth 1), whose vagueness is its strength, allowing it to serve as an all-purpose justification for many fallacious arguments about public policy.

One of the most important messages spun off from "living within our means" is that governments should "balance their books" (Myth 2). The balancing metaphor is powerful and easily captures the mind, contrasting balance, a good thing, with imbalance and skewedness, which in the mind's eye cry out for correction just as a picture hanging crookedly offends the eye and demands adjustment.

The conventional narrative applies this metaphor of balance to the public budget because of its alleged validity for households. What reasonable person would challenge that households should balance their accounts? If we do not, "we must tighten our belts" (Myth 3). It is a mystery how this parable, "households must balance their books, so government should also," ever left the starting blocks, much less gained general acceptance. A bit of reflection and a few statistics lead unambiguously to quite a different parable.

Households do not "balance their books" as general practice. And when households spend more than their incomes they do not "tighten their belts" except when their circumstances are very dire. The making-ends-meet, balance-the-books, tighten-belts metaphors draw their legitimacy from the myth that debt is always bad (Myth 4). In Hamlet, the tediously pompous and much ridiculed Polonius encapsulates the debt myth when he tells his son, "Neither a borrower nor a lender be" (Act 1, scene 3). We find the modern Polonius manifested on a website named appropriately enough "The Balance" (www.thebalance.com). There we read, "A little debt won't hurt, will it?," followed by the ominous warning "That's how it starts," leading to profligate degeneracy and the disintegration of families. That almost no households practice debt abhorrence should come as a surprise to few, yet the fear of debt persists as conventional wisdom.

Because we must live within our means (Myth 1) and our government must do the same (Myth 2), we and our government must tighten our belts (Myth 3) and stay out of debt (Myth 4) by reducing expenditure, not raising taxes (Myth 5). We string the five myths together and come to the super-conclusion: there is "no alternative to austerity" (Myth 6).

All five of the building blocks used to construct the necessity of fiscal austerity are false (each is a myth). When we replace the myths with logic and reality, we reach the opposite conclusion, that "there is always an alternative." The closing chapter presents an alternative approach based on previous myth-busting. Reversing...