Government Debt, Not Household Debt, Is the Problem

The voices expressing concern over private debt are always loud. Articles pour out saying that the size of collateralized loans has risen to an all-time high. Such rhetoric may serve to stir anxiety and fear, but it lacks real substance. What our society truly needs to worry about and closely examine is government debt.

Unlike government debt, household debt is backed by assets or incurred through an individual’s credit. That means it can be handled by individuals through their own capabilities. As the economy grows, the scale of debt naturally grows as well. There is no reason for society to worry or for the government to intervene. The problem arises when debt increases because of the government’s misguided support policies or regulations. When the government intentionally creates a boom or encourages unmanageable borrowing through support policies, individuals fall into a vicious cycle of debt.

The problem becomes more serious when financial authorities control financial companies and allocate funds. The pricing function of interest rates disappears, and the harmful effects of government-directed finance emerge. Policies that set political or macro-level goals and control financial activity mostly fail. The economy creates its own order through voluntary transactions. No intervention by financial authorities seeking to control this artificially can produce a better outcome than the market.

The problem is not household debt but government debt. Government debt has already risen to a dangerously high level that is difficult for our economy to bear, and we are falling into a helpless condition in which new debt must be incurred just to pay the interest going forward. Government debt is the issue the public must watch with a sense of crisis.

Social awareness of the dangers of government debt remains low because it is treated as nobody’s money and as something for which all citizens are collectively responsible, leading everyone to pass the burden along. Politicians and bureaucrats exploit this gap, increasing debt for their own benefit and creating a vicious cycle.

No one has a clear grasp of the reality of government debt. It is virtually impossible even to determine where and how much debt exists. Countless government organizations—central ministries, agencies under each ministry, public enterprises, local governments, and affiliated bodies—are increasing debt under political pretexts. It is also difficult to estimate the contingent liabilities arising from policy failures. Because the situation is not properly understood, the problem itself is not recognized.

Since the future scale of government debt cannot be predicted, there are no countermeasures either. No one pays attention to how much government debt will increase in the future. No one knows when, who, or how debt will be expanded. Nor is there any way to control it. It is, quite literally, “reckless debt.”

Moreover, the politicians and public officials who make these decisions are themselves part of the problem. Because it is not their own money, they irresponsibly increase debt with the attitude that even if the government’s finances collapse, they themselves will suffer no harm. This is a classic case of moral hazard.

There is no such thing as a free lunch. The money spent by politicians and public officials is not free either. It is taken from the fruits of the people’s blood and sweat. Worse still, the reckless overissuance of debt—spending in advance the money that future generations are supposed to use—is shameless behavior. It must never be tolerated.

Sung-no Choi, President of the Center for Free Enterprise (CFE)

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Original title: 가계부채보다 정부부채가 문제다

Author: Sung-no Choi

Date: 2024-02-19

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=26457