Should We Burden Generations to Come by Spending So Freely?

Context: An era of low growth and the challenges we leave them could hobble our coming generations’ ability to pay back our debts and lead better lives

Rising Government Spending: As a part of Pandemic Relief: Spending reached approximately 20% of Gross Domestic Product (GDP) – International Monetary Fund.

Challenges for the Future Generations due to non-directed Government Spending.

• Rising Unsustainable Debt: Sustainability of the sovereign debt is based on nominal GDP growth, low-interest rates and limits in spending.
• Higher Government Spending along with low tax collection due to the subdued economy will sharply raise the debt and make it unsustainable for the long term.

• Structural Challenges:

• Societal ageing: Future Generations (FG) will have to look for our entitlements in the future.
• Limited Investments in Health and Education: have impacted their productivity and capability to pay back out debts.

• Depleting borrowing capacity: 

• Limiting the next generation’s ability to make public investments, the debt that we pass on will likely weigh down future incomes.
• If we deplete overall borrowing capacity now, future generations will be unable to spend as needed if they encounter another “once-in-a-century” catastrophe like COVID-19.

Way Forward: Intergenerational fairness should be as important as intra-societal fairness for those alive today. We must target our spending carefully.

• Shift to protecting workers, not every job: Government should be more discriminating in the firms they support, allowing the market to do most of their job.

• For E.g. in normally flourishing neighbourhoods, small businesses start-up and shut down all the time.
• Authorities should not offer grants or subsidized loans so that distressed large businesses like airlines and hotel chains can retain employees.

• Large Corporation can borrow from the market: made buoyant by central banks.

• In case of bankruptcy, they can restructure their debts and get a fresh start.

• Public support of small and mid-size firms: Support to disadvantage communities and businesses is desirable for both economic and social reasons.

• However, the government should ensure that existing capital, whether from bondholders or stockholders, absorbs a fair share of the losses

• Investment in Education:

• For E.g. we must spend to reopen public schools safely and ensure the necessary facilities for students whose only option is distance learning.

Conclusion: Creating a balance between current spending and future debt burden is the need of the hour for the sake of our children.