Thursday, 13 August 2009

Contra "Public" Debt


Taiwan’s public debt stood at somewhere between 27% and 32% of GDP last year.

Whilst the size of this public debt is not quite on a European scale (where public debt often reaches to 50% of GDP or more), nevertheless it can ill be afforded at a time when the economy is in recession. As major companies in Taiwan bend over backwards to find ways to streamline their operations, it is lamentable that the government does not follow their example.

The single greatest action the government could take to ‘stimulate’ the economy would be to eliminate the source of public debt which will continue to be a drag on the economic growth of Taiwan for many years to come.

Public debt comes from public spending on such things as education and healthcare. It is not merely a fallacy that such services must be publicly funded in the name of providing a ‘safety net’; it is a pernicious error that helps to entrap people in a spider’s web of dependency on the State.

There are a range of policy options available for paying off public debt. The first is tax increases – which nobody likes except those clients of the State who will be in a position to benefit. The second is to borrow from the public and external creditors via the bond market. Bonds, however, must eventually be paid back either by further debt or from present (or future) tax revenues. A third option is public investment in the stock and currency markets both home and abroad, which begs the question of why individual taxpayers in Taiwan are not competent to do so for themselves without the government taking their money in the first place.

But there is also a very dangerous fourth option – which your publication has not seriously opposed. That option is to inflate the money supply by asking the Bank of Taiwan to ‘inject liquidity’ (i.e. print money) into the economy. At the very least, any proposed increase in the money supply at this point must be made only on an assessment which includes ‘hoarding’ – as Professor Werner Sinn recently slandered it on your editorial pages – as part of the demand for money and not seperate from the demand for money. To act otherwise would certainly lead to greater currency depreciation, consequent price rises and damage to savings which would hurt the poorest people in Taiwan most of all.

It is of great importance that, throughout 2009, you and your sister publication, the Liberty Times, vigorously agitate against both monetary inflation and increases in public spending in any sector. Equally I urge you toward consideration of the benefits of alternative monetary systems free from political interference and of the benefits of a true program of privatisation in services currently funded by a coercive and wasteful drag on the productive activities of all of the people in Taiwan.

Yours sincerely,

Michael Fagan

(Sent: Saturday March 7th 2009. Published in the Taipei Times: Monday March 9th 2009)