We are a nation going bankrupt, with leaders too dumb to figure out why

2014-03-12 10:58

When I suggest in conversation with friends and acquaintances that we are heading for national bankruptcy I get blank stares or dropped jaws. Common retorts are - “How can you say that?”; “are you insane?” - or simply; “Explain!”

So I will try to explain by drawing on the analogy of your ordinary, average individual.

Typically, individuals are constrained in what they can do in life by limitations on their earning capacity and ability to deploy their resources sensibly. The smarter ones recognize that the big decisions in life are trade-offs and have the capacity to discern between immediate and long term needs. They also learn to plan for the future. Their net worth at the close of their careers (or lives) is a reflection of their labour and ingenuity and by and large smart people get ahead better by dint of hard work and application, spending sensibly and planning well. Those who fail to do these things tend to come unstuck.

The same principles apply to governments, so let us take a look at how ours conducts its self.

Firstly we have an unsustainable long term budget deficit with little prospects of improvement. A budget deficit is simply the amount by which an individual, business, or government's income falls short of its expenditure and tells you that you are living beyond your means. If you don’t do something about it in the foreseeable future you will be out of business – or bankrupt. There are only two ways out of it – getting more money in by increasing tax revenues or improving productivity; and either spending less or more efficiently.

According to most economists, a rule of thumb is that a sustainable national budget deficit should hover around no more than 3% of GDP (gross domestic product) whilst a 5% deficit is pretty serious and in need of remedial action. Never mind - ours grew to in excess of 7% - so what did we do? Our financial authorities redefined our deficit by reconfiguring the way we reflect neighbouring states (those with whom we share a customs union) in the nation’s accounts. In doing so they concealed our plight by hiding about one percentage point of the deficit with smoke and mirrors, hoping that few would take note.

Of course, even major and successful economies run large - even huge - budget deficits for short periods to get them out of difficulties like a financial crash or after war, but they always have a plan based on economic revival and fostering growth and employment - something only private business, free enterprise and entrepreneurial individuals can ever achieve.

But our government has different plan; and one that aptly reflects the economic acumen of those in charge.

Our government tells us it will be spending more state money to improve our national infrastructure (which is necessary, of course) - but fails to address the budget deficit reduction directly. So where is the money coming from, given that our economy is structured to redistribute limited spoils rather than grow for everyone’s benefit? The inevitable answer is - the taxpayer.

Government will argue that an ever increasing number of employees – typically new additions to the corps of already overpaid members of our bloated and unionized civil service – will be paying taxes as the state hires more people (with the long term and improbable prospect of “economic growth”). So the tanks must run dry because circulating funds at an ever increasing rate between deductions and tax disbursements is unsustainable in the absence of economic growth and outside investment.

In other words, where successful nations define economic performance as growth from which its tax base can grow, South Africa offers that prospect from hiring more civil servants to pay tax so that it can pay for government sponsored projects. It is analogous to the French call girl Irma la Duce undertaking to sleep only with one man who would be her sole client. Predictably, they both ran out of money.

Then there is the issue of the tax base itself.

Some 5 million odd taxpayers (numerically more, but effectively only of that order) support 16 million grant recipients in the most lopsided and unsustainable socialist enterprise on the planet.

And then there is unemployment – with affectively one in three of the nation’s labour force unable to or discouraged from seeking work.

So when I am asked what I mean by a nation going bankrupt, I cite

1. an economy whose government lives beyond its means and cannot grow because of absurd labour and social legislation;

2. an exchequer that is increasingly reliant on taxing an expanding, low productivity civil service in order to raise finances; and

3. a corps of non-productive state dependants who rely on a declining proportion of taxpayers to keep them alive

to make my point.

But of course this cannot last.

There seems to be a growing realization in some quarters (outside of government, of course) that individuals need to generate value in order to be and stay employed - whether working for own account or for an employer paying wages. That is because failing to create the necessary value carries a cost to individuals (as in losing a job or closing down a business) and to society (as in receiving an unemployment grant that someone else has had to pay for).

A public debate also seems to be taking root that recognises this view and strengthens the probability that something might one day be done. As more and more people begin to appreciate our dysfunctional socio-political and economic path, the nation’s leadership will fragment and alliances dissolve - as is already happening (with the EFFers and trade union divisions). These are the inevitable consequence of a low intelligence leadership that ignores the lessons of modern history and basic economics.

So yes - ours is a nation facing bankruptcy on its current trajectory and it seems set fair to continue on that path in the short term – all for a want of intellect, common sense and capacity to learn from others.

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