Living out of other people's pocket

Imagine you lose your job and have trouble finding a new one. Would it be wiser to keep up your standard of living using borrowed money, or to reduce your spending to adjust it to your reduced income? Imagine your neighbor lost his job, should you be forced to give him money so that he can keep up his standard of living? To most people the answers to these questions are very obvious: If you earn less, you should spend less. And you shouldn't be forced to pay for somebody else spending more than he can afford. What I find remarkable these days is how these simple and fundamental truths are very much forgotten when discussing the European debt crisis. Except for the Germans, who find themselves in the position of being the ones asked to pay for the folly of the others, everybody is stating the need to keep up the spending.

If you spend more than you earn, you accumulate debts. That is as true for states as it is for individuals. And this debt accumulation cannot go on forever, because at some point it becomes increasingly unlikely that you will ever be able to repay your debt. The whole European debt crisis is about debtors realizing that we are approaching this point.

Still even economic newspapers clamor for "solutions" which are not about spending less, but about how to get access to more borrowed money. Whether it is Eurobonds or officially making the ECB a lender of last resort, none of these "solutions" actually solves the problem of increasing debt. At some point in time either the states will have to default on their debt, or they will have to find somebody else paying their debts for them. Even if the debtor states could turn the European Union into a transfer union in which money flows from Germany to the less rich member states, that would at best be a temporary solution. Germany has lots of debts too already, and can't pay for other countries for long before running out of money. Thus in the end any further accumulation of debt will mean saddling future generations with it.

All these solutions: debt default, transfer union, or letting the next generations pay back the debt at some point in the future all are variations of the same theme: Living out of somebody else's pocket. The only thing which varies is who is supposed to pay, that being either the debtors, the Germans, or your children. And still nearly everybody speaks about the need to keep up spending, as if continuously rising spending is a human right. Well, it isn't. If a nation produces less added value, it has to adjust spending downward in consequence, just like any individual who finds himself with a lower income. The only political choice we get is whether we reduced our spending ourselves, gradually, and trying to minimize the hurt, or whether we keep on spending like crazy until the whole system implodes and we have to reduced spending by far more at once, because the borrowed money has run out too. I find it extremely sad that governments all over the world appear to have opted for the second option, because they are too timid to tell their voters that a state in which everybody receives more money from the state than he pays in can't possibly work. Governments can print money, but they can't print value. In the end, somebody has to pay. It is a shame how everybody hopes that somebody else will be paying.