In the best part of the globe, when the charm of an economic crisis culprit provides an alibi for cranking up banknote printers, Liberals and Conservatives gang up to muzzle Friedman and overindulge policies prescribed by Keynes to get consumers to keep spending. To fight the economic disruption caused by COVID-19, governments have ranked up debt to provide financial support to individual households and businesses. The US tossed more than $5 trillion, including two direct cash payment to Americans and small businesses to preserve the American lifestyle and industries. Not to be outdone, Japan’s commitment to spending and the European’s scheme each surpasses $2 trillion.
There is logical fairness in the notion that government spending would help to boost productivity and to drive more consumption or spending by consumers. Government spending has yet to unshackle the developed world from the over-efficiency trap that feeds the addiction to the oxycodone of the masses: the ability to sum up and spend now presumed future income, which has turned consumers into shoppers, compulsive buyers.
The consensus is that all debt must be paid for eventually, and if it is not paid for today, it will be paid for by future generations. As the most indebted countries kick the can down the road, the IMF’s Global Debt Database shows that total global debt (public plus private) has already crossed the $200 trillion mark. The irony is this: poor countries are the least indebted, while the most advanced economies have staggering national debt and they do not genuinely plan on going cold turkey anytime soon. It is politically unpleasant, whether you are in a democracy or not. However, there is a way to erase more than half of the global debt while making the gain of the triumph inclusive.
How to erase more than half of the global debt while making the gain of the triumph inclusive?
A debt relief program for Highly Indebted Nations (HIN) would see each national account credited with $ 1 trillion. Assuming the balance is positive, 25% should be spent on infrastructure, 25% on social programs, and the rest on subsidizing the increase in the universal minimum wage to $ 2 an hour. The World Bank and the IMF could be the ones watching everyone, their new raison d'être.
The most obvious social and economic result for the most indebted countries, it will decrease the pressure to reduce their social programs or increase the taxes of their citizens. For the majority of the least indebted, it will provide more funds than necessary to improve their socio-economic situation, which in turn will save innocent lives by derailing deadly civil unrest.
As nations that will end up with a heap of liquidity will also be the least developed, under the term of surplus spending, would logically seek rapid modernization rather than industrialization. Individuals in advanced economies are those who have the means to participate, engage, or be involved in modern enterprise or dialogue. Intermingling the two aspects would generate new prospects for individuals and businesses from developed nations, while competition between them would present a range of quality choices for developing countries.
In doing so, in term of major economic indicators, the foreseeable outcomes are as watering three delicate plants with one hose. It will generate in the advanced economies, which are also the most indebted and cannot get out of their efficiency trap, they will experience a sustainable increase in industrial production, investment and consumer spending. Above all, countries from all the economic stratospheres would benefit because HIN would be supporting job growth and driving down unemployment rates. In doing so, it would halt the migration of the poor toward what is seen as the land of milk and honey.
Even if the leaders of poor countries waste all the financial manna on shady deals and projects with the help of financial vultures and mercenaries, their citizens overall standard of living will be less atrocious. Mankind would improve the state of universal poverty, which is currently horrific and primitive.
Jo M. Sekimonyo is a theorist, human rights activist, political economist, and social philosopher.