Excerpts and commentary on Niall Ferguson’s first Reith Lecture. All emphasis added.
In reading this piece I thought constantly of the Open Spending project where we are endeavouring to collect together government (and other public) financial information from around the world and present it in an understandable way. In particular, it made me wonder whether we should try to do more beyond collection and presentation of the data to provide additional (necessarily somewhat speculative computations) such as proper financial balance sheets.
Fraudulent and inaccurate public finances
The present system is, to put it bluntly, fraudulent. There are no regularly published and accurate official balance sheets. Huge liabilities are simply hidden from view.
Not even the current income and expenditure statements can be relied upon in some countries. No legitimate business could possible carry on in this fashion.
The last corporation to publish financial statements this misleading was Enron.
There is, in fact, a better way. Public sector balance sheets can - and should be - drawn up so that the liabilities of governments can be compared with their assets.
That would help clarify the difference between deficits to finance investment and deficits to finance current consumption. Governments should also follow the lead of business and adopt the Generally Accepted Accounting Principles.
And, above all, generational accounts should be prepared on a regular basis to make absolutely clear the inter-generational implications of current policy.
US liabilities
The most recent estimate for the difference between the net present value of federal government liabilities and the net present value of future federal revenues is $200 trillion, nearly thirteen times the debt as stated by the U.S. Treasury.
Notice that these figures, too, are incomplete, since they omit the unfunded liabilities of state and local governments, which are estimated to be around $38 trillion.
These mind-boggling numbers represent nothing less than a vast claim by the generation currently retired or about to retire on their children and grandchildren, who are obligated by current law to find the money in the future, by submitting either to substantial increases in taxation or to drastic cuts in other forms of public expenditure.
Scape-goating
As our economic difficulties have worsened, we voters have struggled to find the appropriate scapegoat.
We blame the politicians whose hard lot it is to bring public finances under control, but we also like to blame bankers and financial markets, as if their reckless lending was to blame for our reckless borrowing. [ed: but bankers often engaged in efforts to enable and prolong reckless borrowing, and this included heavy lobbying to prevent effective regulation, after all one of the roles of the State is to help its citizens avoid bad decisions]
We bay for tougher regulation, though not of ourselves.