There are too many concepts that appear to be unavoidable and insurmountable on the surface. As a result, these concepts are rarely questioned, except by some heterodox economists who are either dismayed or heretical; often talented and other times acting in bad faith.
As such, speaking of the public debt, for many of those who believe that the public debt is not an obstacle to public spending and could be much higher than it is today, their main argument is the following: we make a lot of noise because the public debt reached 100% of GDP, while this amount is much lower than private corporate debt and even private household debt. They cite the example of a household that wants to buy an apartment: it can borrow up to 7 times its annual household income, with the condition that it allocates 30% of its income for 25 years toward that debt. According to this example, they argue that the State debt could hypothetically be 700% of GDP, and we are actually far from it!
This reasoning withers under light. First, the public debt should not be compared to GDP, but rather to public revenue, which is the sole source of its reimbursement. Since public revenue currently hovers around 20% of GDP, in Europe, the public debt already equals to around 5 years of revenue. Moreover, allocating 30% of the state’s revenue to the public debt would be exorbitant, especially since, unlike an individual who buys a home, part of this debt is used to finance current spending, and does not lead to an increase in wealth building portfolio like buying a home. Finally, it would be a folly to go into debt for 25 years, knowing that the state cannot borrow at a fixed rate beyond 7 years; the risk of having such a long-term debt is enormous. Especially when foreigners own half of the debt, as it is the case in France.
What is left of the major argument of these heterodox economists is that: a state cannot go bankrupt. Looking at the example of Greece, we have seen what this argument is worth. Greece was forced to give up its crown jewels in order to get creditors off her back.
As such, controlling and reducing the public debt remains a priority.
However, there is another criticism made by orthodox economists, that is to say liberals, about the situation of scandinavian countries and France that deserves to be contradicted much more often than it is today: the one concerning mandatory withholding tax rates.
Indeed, we hear them reiterate that the tax rate in these countries is intolerable and unbearable, and that it is among the highest in the world, and thus must be reduced. This is wrong.
In fact, these taxes cover expenses that, in other countries, are financed partly by consumers themselves, such as education and health. And the coverage of these private expenses is made, in general, through insurance, which can either be mandatory or optional, or by borrowing, the repayment of which is just as mandatory as insurance premiums or taxes.
Also, public spending in scandinavian countries and France should be compared to the total of public spending in other countries, including insurance premiums and borrowing costs that finance these same services . And there, we would arrive at results that are closely related; and perhaps even higher in countries such as the US or UK or Germany where a large part of these expenses are financed by insurance premiums and loans; because there are additional costs linked to the profits withheld by the insurance companies and the banks.
No, mandatory withholding tax rates in scandinavian countries and France are not excessive. It is the nature of our modern societies to mutualize a large number of services, whether publicly or privately funded.
There are also compulsory private spending, which are equivalent to the rates of taxation.
At a time when everything is changing, especially because of technological and geopolitical shifts, many other topics deserve to be looked at with fresh eyes. Nothing is sacred anymore. Not even the numbers.
j@attali.com