Giuseppe Eusepi and Richard E. Wagner give an analysis on Public Debt.

In the preface to his Guide to Aesthetics, the Italian liberal philosopher Benedetto Croce, in trying to define what art is all about, starts by stating what art is not. Following Croce’s example, Eusepi and Wagner explain what public debt is not within a democratic system of political economy. To define something by negation as a mode of investigation might lead one to believe that it is a pure exercise in rhetoric that can be dragged on indefinitely. This belief would be wrong. The definition by negation that Public Debt. An Illusion of Democratic Political Economy presents is necessary to explain the deeply misleading character of standard analyses on public debt.

Public Debt is not a work espousing the Ricardian equivalence between public debt and taxation. Nor is it a marginal critique of the Keynesian theory of fiscal policy. Public Debt explains the wrong-headed character of both Ricardian and Keynesian traditions within a democratic setting of political economy. While the concept of sovereign debt has a place within both Ricardian and Keynesian frameworks, it is oxymoronic when transplanted into a democratic setting where there is no room for a sovereign in the flesh with his own budget. When it comes to democracy, politicians can issue debt without being liable for its repayment, for they are simply intermediaries within the process of creating public debt. Contrary to the monarchical times of old, public debt is an illusion within democratic polities. To say this is not to deny that public debt exists, but is only to recognize that no identifiable agent is responsible for the creation or the extinction of public debt. Contrary to monarchical times, public debt in democracy imposes liabilities on one part of the population (taxpayers) while establishing benefits for another part (bondholders).

“Public debt has long been viewed as a primitive datum, as providing a starting point for analysis. To the contrary, public debt is a derivative outcome from a democratic budgetary process.”

Contrary to the conventional illusion about public debt, an entirely different view of public debt emerges from Antonio de Viti de Marco’s microeconomic approach. In his conceptual distinction between cooperative and monopolistic forms of democracy lies understanding as to why public debt in a democratic context is completely different from a pre-democratic one.

Public debt has long been viewed as a primitive datum, as providing a starting point for analysis. To the contrary, public debt is a derivative outcome from a democratic budgetary process. This point is important because the budgetary process may create public debt or may not; therefore, that process becomes crucial to explaining why public debt is created. If debt is a primitive datum, or an uncaused cause, as it is viewed by the standard macroeconomic approach, the only relevant aspect to be analyzed is the ratio of public debt to GDP.

What makes de Viti’s analysis interesting and relevant is his analytical distinction between a cooperative state, whose logic simply mimics market consensus, and a monopolistic state as a form of a real democracy, where consensus is replaced by the logic of majority and minority.

The insight that emerges from the standpoint of a monopolistic state is that public debt becomes a form of shell game. Similar to this gambling game, where the operator must convince the players of the legitimacy of the game using a sleight of hand, government operates a shifting of cost from dominant to subordinate groups as covered by an ideology of self-governance.

A further argument surrounding public debt is its ability to corrupt the language and practice of political economy. As an example of where a distorted vision of public debt can lead, it is instructive to consider a contract. Although a contract represents the purest concept in economic interaction, when that concept is extended to public ordering, leaving aside the hypothetical construction of a cooperative state, it becomes an expedient to obscure the role that public debt has in favoring politically dominant groups.

Public Debt
An Illusion of Democratic Political Economy
By Giuseppe Eusepi and Richard E. Wagner
is available now.