OK it’s way past my bedtime but I couldn’t resist showing you this. I was researching something when I was struck by the similarity between these two diagrams. On the left we have income inequality – roughly speaking, the difference between the richest and the poorest fifth of each society. On the right we have the amount of debt that countries across the EU have gotten into in the last few years.
Broadly speaking, it’s the most unequal countries that are also the most indebted. How does that happen? The ‘liberalisation’ of many economies in the past decades was ostensibly meant to make them richer. The effect though has been very different. Low-tax countries are having to borrow in order to meet expenditure, particularly when times get tough. Meanwhile their lack of redistribution means that citizens are encouraged to borrow in order to compete socially – sometimes even to meet basic expenses. This private indebtedness tends quickly to become public when lenders collapse.
In short, trickle-down economics is really trickle-away. Though a minority of individuals within them are of course better off, countries that cut back on tax and expenditure end up impoverished over all. People seem to vote for such policies in the optimistic hope that they will somehow get into that ever smaller, ever richer minority. The odds suggest that they should buy lottery tickets instead.
Yesterday the UN voted to introduce a protective framework for insolvent nations. The motion was sponsored by Argentina, a bankrupt country currently under attack from ‘vulture funds‘ that bought portions of its debt and are now blocking any restructuring deal on the grounds that it might reduce expected profits. The resolution was carried with 124 in favour and only eleven nations against. By and large these are home to powerful financial sectors that might lose out from restructuring poorer countries’ debts: the US, Germany, UK, Canada, Japan. There was one weird exception: Ireland.
Government will keep playing this down, but we are one of the most indebted nations on the planet. More than a quarter of our revenue goes directly to service borrowings. Only Greece and Panama spend more. Only Greece, Portugal and Papua New Guinea have greater international debt as a proportion of their economies (source). And yet our alleged representative votes to protect not the national finances or the wealth and health of the citizen, but our corrupt and corrupting financial services sector. Ladies and Gentlemen, do you see what we have become? A debtor nation, with a creditor leadership.