Thursday, August 11, 2016

Cicero, welfarism and fiscal irresponsibility

Words of wisdom from a Roman philosopher, Cicero (106 - 43 BC) nearly 2,100 years ago. There are minor differences in these two quotes, should be a result of different translations.

The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed, lest Rome become bankrupt. People must again learn to work, instead of living on public assistance. - Cicero, 55 BC

The case of the Philippines on budget balance -- recent years and administrations, it never happened. National budget, P3.0 trillion this year, P3.35 trillion in 2017, perhaps about P0.3 trillion will be borrowed.

A consequence of always on budget deficit, always borrowing, is high interest payment alone.

PH government debt interest payment alone, principal amortization not included yet, in P billion:
2008, P272.22;  2009, P278.87
2010, P294.24;  2011, P279.00
2012, P312.80;  2013, P323.43
2014, P321.18;  2015, P309.36 

Sige, utang lang ng utang ah.

The "freedom from debt" campaigners but have little or no "freedom from (endless) borrowings" philosophy are concerned too about the P6.4 trillion (as of around end-2015) PH public debt.

Living beyond our means is justified in period of fiscal/economic crisis, natural disasters like huge earthquakes, landslides, volcanic eruption, etc. Governments must borrow to replace damaged roads, bridges, etc. In period of no crisis, no disasters, we should live BELOW our means, have surplus and pay back old loans, and build up savings and reserves for future emergencies.

Anywhere in the world today, very few countries and governments do this. Majority are on the spend-spend-spend, borrow-borrow-borrow, tax-tax-tax policies. And that is how almost all governments in the planet are heavily indebted. With public debts of 40%, 100%, 200% of GDP.

Too many politicians, NGOs, consultants, academics, etc. are corrupted by foreign aid -- from the UN, WB, ADB, IMF, USAID, etc. There is endless drama on poverty and inequality so that there will be endless flow of foreign aid.

When poverty was defined as "earning only $1/person/day" many years ago, poverty rate then was high. After 1-2 decades of growth in many countries, hundreds of millions were lifted from poverty, and there was corresponding adjustment to $1.5 or $2/day/person, and so poverty remains high again. When poor people move up the income ladder and are no longer poor based on that definition, foreign aid officials and consultants will likely revise the definition of poverty as earning $3/day/person and conclude that poverty remains high and horrible, and so horrible amount of foreign aid and tax money from rich countries should be needed.

One of my academic friends from UP shared this story with me and other friends. After a USAID-funded poverty research that he conducted, he presented it to USAID officials here in Manila. His opening statement,

"I am not sure about the outcome of these policy recommendations we made. But one thing I am sure of is that before this project, I was somehow poor. After this project, I am no longer poor." And the USAID people were laughing; funny but true.

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More quotes from Cicero:

1. Laws are silent in time of war... No one has the right to be sorry for himself for a misfortune that strikes everyone.

2. Freedom is a man's natural power of doing what he pleases, so far as he is not prevented by force or law.

3. What gift has providence bestowed on man that is so dear to him as his children?

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