There is clearly a common denominator in the kind of “solutions” that the State comes up with to deal with the problems that it caused (and that’s most problems). Not only are these remedies worse than the disease, but they are always extremely simplistic, reductionist and they never, ever, take into account anything else apart from the political “optics” and the populistic value of each new measure or piece of legislation. There is no consideration about the impact down the line, the price that the population as a whole would have to pay or the ways society itself could be affected.
In recent years, we saw this kind of flagrant irresponsibility and recklessness in the aftermath of the 2008 crisis, when all western governments and their central banks embraced QE and ZIRP & NIRP as a miracle cure, despite the obvious and entirely predictable toxic consequences it had. Same story with the covid crisis and the unprecedented printing and spending wave they unleashed to counter the results of their own lockdown and shutdown policies. And now, to deal with the obvious consequences of all that again, namely inflation and a global cost of living crisis, they are once again resorting to “easy fixes”, to populist tactics that only serve to pacify the public, but in no way actually solve any of the core issues.
We saw the “Inflation Reduction Act” in the US, which was basically a spending package, flooding the economy with even more money. In Europe, governments resorted to adding new subsidies and sending out more checks, just like the covid days, because what else could help rein in higher prices than giving people money to help them push said prices even higher? It might not come as a total surprise, but none of these measures helped – in fact, they made things worse. So now, with prices still pushing countless working households to the brink and paychecks being slashed by grocery bills, rent, and energy costs, a worryingly large part of the population has been forced into borrowing.
In the US, consumer debt passed $17 trillion for the first time in May. As Fortune highlighted: “total credit card debt remained flat in the first quarter, at $986 billion. While that might seem like a good thing, it’s actually a troubling sign of the times. After racking up credit card debt on gifts and get-togethers over the holidays, consumers typically spend the first few months of the new year paying that debt back down. But in 2023, that hasn’t been the case. Other balances, including retail cards and other consumer loans, also increased by $5 billion. Some experts believe this shows that the average person is relying on credit to cover their daily expenses, which have also seen record highs thanks to rampant inflation. The delinquency rate among the number of people who fell 30+ days behind on credit cards payments increased as well. And about 4.57% of credit card debt transitioned to “serious delinquency” last quarter, meaning cardholders were more than 90 days past due. That’s up from 3.04% in the first quarter of 2022.”
As the pressure keeps mounting and as the real economy keeps slowing down, what can possibly be done to support normal households and avert an economic disaster that will very predictably turn into a sociopolitical one? After all, when the State’s own finances are in disarray or when big banks go bust, nothing really happens – the news cycle simply moves on to the next “important story” and eventually people forget about it (even though mere denial doesn’t actually make problems go away). But when a growing number of real working households begin to experience practical difficulties in putting food on the table, it’s a very different story. The anger is quick to spread and politicians know this very well and justifiably fear it.
They obviously cannot adopt any realistically helpful solution at this point. It wouldn’t be politically survivable to cut spending, to fire public sector employees and to cancel unnecessary and wasteful government programs. Raising taxes (even more) would also spell career suicide. What they can do, however, is once again embrace the totally myopic, reckless and delusional way of solving real problems. If the public is carrying too much debt, why not just cancel it?
It might sound ridiculous, but a whole lot of other things sounded ridiculous too right up to the moment they actually came to pass and by now, became the “new normal”. The Biden administration’s student loan forgiveness set a politically expedient, yet very dangerous precedent. Just a few years ago, it would have been unthinkable that any government would force taxpayers to foot the bill for the consequences of the personal choices of a part of the population. It is a morally obscene idea and a direct insult to all those people who chose less privileged or high status jobs and avoided student loans, or saved and sacrificed for years to pay off their student debt. This isn’t just wealth redistribution, it is also personal responsibility redistribution.
Nevertheless, in the extreme situation that most western governments are facing today, extreme measures could very well be the only path forward. The fact that a “remedy” idea is simply ridiculous, plainly destructive and clearly counterproductive is not likely to stand in the way of its implementation – it never did before.
Claudio Grass, Hünenberg See, Switzerland
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