Big Government, Debt Financed, and Administrative Proxy: An In-Depth Analysis

The question of why Big Government is both debt-financed and administered by proxy is a complex one. This article aims to address this by examining the underlying economic and political factors that contribute to this phenomenon.

Debt and Balance in Personal Experiences

Let us consider a scenario that illustrates the concept of sensible government borrowing through a personal experience. In 1946, my grandmother purchased a house for 5000 dollars, a significant sum at that time. This purchase was undoubtedly a debt-financed decision, but it was not beyond her means and was a sensible investment. As her income increased over the years, this debt became a smaller part of her financial obligations. The house served her well and, in hindsight, was a wise investment.

If, hypothetically, my grandmother had financed a house, extravagant furniture, a Rolls Royce, and frequent trips to Fiji with such debt, it would have been a different story. Such spending would have been deemed irresponsible and an unsustainable burden. This personal example underscores the importance of prudent debt management.

The Role of Sensible Governments in Debt Management

Similarly, sensible governments recognize the importance of prudent debt management. They focus on borrowing for infrastructure and public projects that will benefit the public good in the long term. These investments are deemed necessary and worthwhile, much like my grandmother's initial investment in a house.

It is crucial to note that the scale of government borrowing can be influenced by the nation's economic prosperity and the presence of wealth reserves. For instance, Norway has a massive sovereign wealth fund of over a trillion dollars, making it one of the wealthiest nations globally. With such substantial reserves, Norway could theoretically function for years without further borrowing. However, Norway also has a national debt that stood at 46% of its GDP as of 2020, which is significantly lower than the US's ratio of 100%.

The rationale behind this approach is multifaceted. First, while Norway could survive without further borrowing due to its vast wealth, it does so in a way that maximizes economic growth. Borrowing can fund current projects, thereby stimulating the economy and enhancing future growth. This strategy is supported by the fact that interest rates on sovereign debt are at an all-time low, making borrowing cheaper.

Debunking False Assumptions

Your question is based on a common misconception: that big government equates to high debt and unrestrained spending. However, this is not always the case. Consider Norway again, a nation with a “big government” in terms of comprehensive governance, yet with a sustainable approach to debt.

Norway, with its sovereign wealth fund, does not need to rely on debt as a primary funding source. Instead, it can use its wealth to pay for current expenses and invest in future generations' well-being. For some governments, especially those with the largest sovereign wealth funds (SWFs), it often makes sense to borrow rather than drawdown their SWF savings. The reason is straightforward: interest rates on sovereign debt are historically low and borrowing can be more cost-effective in the long term.

Conclusion

In summary, the concept of Big Government, Debt Financed, and Administrative Proxy should be viewed through a lens of pragmatism and economic strategy. Governments can and do borrow for strategic reasons, and their ability to manage debt is influenced by factors such as economic health and sovereign wealth reserves. Understanding these dynamics is crucial for navigating the complexities of modern governance.