Nation e-Edition

As I See Things - Limits to governments

As I See Things - Limits to governments

Mon, October 15, 2012 - 12:00 AM

OVER THE PAST FEW DECADES several Caribbean countries, including Antigua and Barbuda, Barbados, Grenada, Guyana, Jamaica, and Trinidad and Tobago, have had to implement structural adjustment programmes with or without the direct involvement of the International Monetary Fund.

These adjustment programmes were necessary for various reasons, most importantly dire fiscal deficits, huge and rising debt levels,  and unsustainable balance of payments positions.

Although the measures put in place to correct the underlying problems in the economies had some level of success on the macroeconomic front, the social implications were pronounced.

In the United States, President Obama came into office with a massive mandate (winning the vast majority of electoral colleges) and immediately increased the role and size of the federal government based largely on a social engineering agenda that reflected his fundamental belief in income and wealth redistribution.  

What resulted was a massive increase in the federal budget deficit and consequently a huge build-up of over US$5 trillion in national debt in a mere four-year time frame.

Faced with record-breaking levels of unemployment and clearly unsustainable fiscal and debt situations, several Western European countries such as Spain, Greece, and Portugal had little choice but to implement austerity measures to stabilize their economies in the short run, thereby hopefull, putting themselves on the path to growth and development in the long run.  

Even though the measures taken were deemed necessary by those in authority, some sections of the local populations disagreed strongly and expressed their disgust by mounting massive protests against their governments’ actions.

Indeed, all of the examples cited above lead, in my opinion, to a very simple conclusion: there must be limits to what governments can do irrespective of the size of a country, abundance or lack of natural and other resources, size of the local population and type of economic system in place.

The reality is that if as leaders and ordinary citizens we fail to recognize and accept that basic inference, the probability of maintaining strong economies over a sufficiently long period of time will undoubtedly remain low.

Let’s face it – most governments would be happy to provide employment for as many citizens as possible, free access to education and health, safety nets for those less fortunate among us, and easy access to housing for those in need; simultaneously, they would like to ensure growth and development of their economies and security for their citizens.

The problem with this scenario is that governments do not generally create income or wealth.  Hence, their activities have to be financed by taxation and borrowing.

As many Caribbean countries, the United States and Western Europe have demonstrated, there are inherent dangers to heavy and excessive reliance on taxation and debt accumulation to finance large governments’ operations.

This basic truth should signal to all and sundry that there ought to be limits to what governments can do.

To function within those limits, governments only need to implement this simple strategy: stop spending resources that are not available except in special or emergency situations!  

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