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"Society is a contract… the state is a partnership not only between those who are living, but between those who are living, those who are dead, and those who are yet to be born."

This quote from the 18th Century political theorist and philosopher Edmund Burke summarises much of the argument put forward in the first of the 2012 Reith Lectures given by the economic historian Niall Ferguson, which broadcast on Radio 4 this morning.

Professor Ferguson says we are currently witnessing an unparalleled breach of this partnership because of the huge debts being racked up by governments, which are set to be passed on to younger - and unborn - generations.

Furthermore, says Professor Ferguson, many governments are dishonest about their true level of debt. The present system, he says, is "fraudulent" and "huge government liabilities are hidden from view."

"No legitimate business could carry on in this manner and the last corporation to publish financial statements this misleading was Enron."

In the lecture, Professor Ferguson listed a series of proposals for reform of government finances:

  • Public sector balance sheets should be drawn-up so that government liabilities can be compared to assets.
  • Governments should adopt the Generally Accepted Accounting Principles, which corporations abide by.
  • Above all, governments should be prepared, on a regular basis, to make absolutely clear the inter-generational implications of current fiscal policy.

In the current climate, austerity is something young voters in particular should welcome, he argues - but concedes that winning support for this is a mountainous task.

But, says Professor Ferguson, if we do not embark on wholesale reform of government finance, we will end up with the scenario where Western democracies are going to carry on until one after another they follow Greece and other Mediterranean economies into "the fiscal spiral of death".

Alternatively, we all become like Japan and face decades of low to zero growth.

What do you think of the issues raised in the lecture?

  • Are Western democracies in denial about their debt levels?
  • Are the alternatives to austerity more effective?
  • Do you agree the baby boomers have benefited at the expense of younger generations?

Listen to the full lecture on the Radio 4 website

Download Niall Ferguson's 2012 Reith Lectures

Richard Fenton Smith is a Senior Broadcast Journalist for News and Current Affairs Radio.

Niall Ferguson's first Reith Lecture, titled The Human Hive, will be repeated on Radio 4 on Saturday, 23 June at 22:15 BST.

The second lecture in the series, titled The Darwinian Economy, will examine the issue of financial regulation. This will broadcast on Radio 4 on Tuesday, 26 June at 09:00 BST

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  • Comment number 44. Posted by All for All

    on 3 Jul 2012 23:03

    Michael @43

    I fear that your enthusiasm, whether it is for homage or polemic, somewhat runs away with you! Unless you have employed direct quotation, the professor will not I think understand your starting point.

    That 'democracy' demands "treating all citizens equally", a fellow most 'absolute' might take as a 'principle' to demand equality of ice-cream consumption or hat-size or even VAT.

    For the rest I commend Occam's Razor.

    Need more be said?

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  • Comment number 43. Posted by Michael McPhillips

    on 2 Jul 2012 17:15

    In democracies the principle of treating all citizens equally must be respected. This makes overburdening the next generation with debt undemocratic.

    The same principle must apply to taxation obviously so taxing some more than others, as happens for indirect taxes, is also not only undemocratic but dishonest.

    Another inequality now apparent is that of Government created bank credit. When mortgages to public sector workers, government debt, loans to companies supplying government and involved in capital programmes, plus any savings by welfare recipients, are taken together banks are seriously exposed in recessions and to falls in tax revenues. Common sense says that the incentives should all be to the private sector yet job security and the collateral of future guaranteed benefits show the opposite to be the case, which makes nonsense of attempts at fiscal consolidation and shows deficit spending to be economic suicide.

    All of these inequalities will eventually lead to a very unequal society and must also eventually set the scene for social unrest perhaps even violence. They also by their nature create circumstances where higher taxes and the printing of money will be the only ways politicians have of dealing with the outcomes. Demand will constantly reduce so supply must also, the former affecting the poor and lower earners and the latter the higher earners.

    There are no winners here and this dwarfs in risk those posed by China’s fifth killer app since the temptation to expropriate private property will be huge. Taxes on property and deposit interest already are in place and also affect the poor more than the rich and those saving more than those already borrowed.

    If the lectures don’t deal with this they will be missing a focal point around which events will unavoidably occur and with tragic consequences. Omitting to do so would seem like indicating that the law(s) not in place elsewhere are the only problem when we have here such a serious and perhaps fatal democratic deficit.

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  • Comment number 42. Posted by All for All

    on 27 Jun 2012 10:33

    ScottishTaxPayer @36
    "Stealing from children"

    Most will welcome Professor Ferguson's concern for children, tomorrow's as well as today's. Before accepting any prescription we would though like to know, on whose children the concern focusses, and what is the likely fate of children who are not the subjects of concern. If 'the concern' is not 'for all', then 'we' might wonder to what and why are we listening. Let us here assume a genuine 'concern for all', however paternalistic or misconceived, some relation to 'democratic aspiration'.

    Some supposed 'conservatives' might state their concern to be 'for competition', for winners to lead all wherever the fancy takes 'them'. They might explicitly invite all to trust, in 'them', to lead where 'others' will see or discover themselves 'well' to be led. Failing 'trust', they might 'invite' us just to expect 'the inevitable', other views to be out-competed, in argument, or by 'natural weight' of propaganda, or cowed 'if it must be' by experience, poverty, gang-emergence, species of martial law.

    Others, less inclined to trust or to sell trust, taking true conservatism to be a socially agreeable 'holding to good except to accommodate better', will be concerned that on-going trust should have a rational basis, not just 'the requirement of trust' that we might in emergency ask towards group survival. Even for those, the vast majority, whose 'group' might be decided as 'humanity', the question will remain: "What kind of humanity, and what proportion or selection of survival do we, can we, hope for?"

    Assuming 'moral equivalence' in our 'expressions of concern', our distributional prescriptions for 'fairness and survival' might be seen as contingent: that of secure equality being appropriate for perhaps some billions of years making progress in peace, that of 'the strong-man' being best if life is agreed to be of perpetual emergency.

    Whatever the conscious or unconscious motives of parties along the spectrum that extends from equality to chaos, it should not be assumed that presented options are all in fact 'honest' or even viable. If fully thought-through, any agreement might serve: but can a viable civilisation really be based on 'agreement to disagree' on so fundamental an issue as our sharing of what together we make, in our access to goods, services and representation, in the direction of our world and our steer for the future?

    Against the notion of 'moral equivalence' in the propositions, it can be argued that leadership amongst equals is not precluded, merely to be won and accorded by earned respect, arguably a better basis than purchase from however-earned advantage in money. Further, the idea of 'perpetual emergency' might be rejected as too much conditioned by experience of 'internal emergency', from the conflicts engaged in by all in times past, before due consideration of what is in fact a real choice, that between egalitarian co-operation and possible auto-extinction.

    Short of human or planetary extinction, ignorance and inequality have already 'delivered' the full range of horrors, for individual, tribes and whole civilisations in our history. My counsel would be against the continued rule of Fear and Greed, against rule as if in perpetual emergency, and in favour of Lincoln-updated: "Rule Of, For, By The Equal People". We need to think about, to get used to the fact, that equality is the necessary shareable foundation of 'agreeable life together', of viable civilisation.

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  • Comment number 41. Posted by Brian

    on 27 Jun 2012 03:50

    I'm afraid Mr. Ferguson has done nothing to help the image of this lecture series. There are more informed, less biased, individuals that could give us a much more useful outline of the subject matter in question. Oh! and by the way, there is also a fine line between Moderation and Censorship on the BBC?

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  • Comment number 40. Posted by Brian

    on 27 Jun 2012 02:44

    I agree with Beverley at comment 15. Had more to say on the subject but was sanctioned by an overly sensitive Moderator at comment 38.

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  • Comment number 39. Posted by ScottishTaxPayer

    on 26 Jun 2012 23:35

    You have to laugh at the 'Bilderberg conspiracy' posts - sounds like an old Mel Gibson film!

    'indignados' by the way wasn't Ferg's term - please feel free to use google.

    Amazed how samurairo missed the point completly. F explains how our weak ruling elite rob from the young and unborn to pay for sky rocketing welfare for the old and you think he is attacking the young?
    F's point is that the % in work is shrinking as the population ages and taxpayers can't afford the bill. This population timebomb isn't really news as it has been debated for decades now.

    People still just don't get it. If you are drowning in debt you can't solve it with more borrowing. Hello? In a hole? - stop digging!

    Do you really think we can carry on this decade as normal. The game is up and unless someone finds a dozen new massive oil fields pronto then all our kids better learn some Chinese.

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  • Comment number 38. Posted by Brian

    on 26 Jun 2012 23:06

    This comment was removed because it broke the house rules. Explain

  • Comment number 37. Posted by ScottishTaxPayer

    on 26 Jun 2012 23:00

    'UK government debt has been incurred by the bank rescue, not by government expenditure'. - so wrong - by both.

    Aircraft carriers built and scrapped before a voyage, nuclear weapons, ID card fiascos, Scottish parliament £billion building, Edin trams £billion, PFI, millionaire doctors striking for more, wars for WMD etc etc
    - governments are the main cause of wasted billions - you only need open a newspaper any week of any year to see how your taxes are flushed down the drain.

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  • Comment number 36. Posted by ScottishTaxPayer

    on 26 Jun 2012 22:48

    Fred calls for 'a series where Fergusson was in conversation with someone on the left' - That is called a debate. This was a lecture. Please see dictionary for definitions.

    Ferg. gets attacked for being a conservative. Has free speech ended? Are we not to have anyone challenge the decades long practice of stealing from our children to pay for today. All that our political masters of both shades have done is to create a bankrupt state that will have no choice but to tighten the chains until we all squeek.

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  • Comment number 35. Posted by Robert McDowell

    on 26 Jun 2012 11:56

    In the Reith lecture of 26 June characterising the financial crisis and regulation, the analogy with Malthus and Darwin is irrelevant, but the quotes from Bagehot are appropriate.
    Banking risk regulation is not complex except technically to implement if given time to understand properly the few thousand pages of advice, risk accounting equations, and how to model banks in the macro- economies in which they do business.
    Doing this work fully is a job few are given or trained for, certainly not the lawyers that Ferguson gives too much attention to. He overlooks the immensely important bug errors in the risk models of ratings agencies.
    Nearly all 'front-line' bankers avoid taking the trouble to manage risk directly, leaving this to lower echelon back office geeks to express the rules in computer systems.
    Ferguson when reading Begehot is right to point out that hard to quantify personal judgement is important, but that also goes wrong. The most relevant complexity issue is that 'universal banking' developed far beyond the human ability of main boards to comprehend and manage, the only justification really for Dodds-Frank and the UK's Vickers Commission Report recommendations.
    It is wrong of Ferguson to assume all developed countries had housing bubbles. For example, banks in Germany did not stoke housing prices by lending predominently to property but to industry instead (and proportionately ten times more to small firms than UK banks lend), while in others, above all USA, also UK and others, banks lent mainly for household and corporate mortgages.
    It is a mistake of Ferguson to accept the homespun media story that China bought $trillions of US securities to prevent its currency appreciating. The Renmimbi is not a floating currency. China gained dollar reserves from its export surpluses and has deposited most of these reserves in domestic banks to support loans to industry.
    Insofar as there was regulatory failure this followed from central banks' inability to deliver clear warnings to banks about skewing their lending too much to any one sector of the economy. Greece's central bank did so in good time, several times, but was rudely ignored by its banks. Monetary and fiscal stances of governments are less relevant than the inevitability of economic and credit cycles, about which Ferguson is silent, even though these are what banking regulations (Basel etc.) are principally concerned about coping with, not least so that the burden of recovery does not fall entirely on government budget deficits and sovereign debt.
    Recessions have to have triggers but are inevitable. For the USA, the triggers this time were historically high trade deficits and a concomitent property bubble. For other countries, triggers can include fall in export demand or governments too speedily balancing their budgets.
    Basel regulations apply to private banks who do international business and set minimum regulatory capital reserves at a level expected to be nominally wiped out in a normal recession after which half of current nominal losses are expected to be recovered over the following few years as losses become finally realised. The Credit Crunch caused banks in USA and other countries such as the UK to nominally lose double their minimum capital reserves. This was because retail banks could not replenish their borrowing from the money markets at what they perceived to be viable rates of interest.
    Governments and central banks had to step in to fill the role that the more fearful and greedy private sector would not fill. Governments on and off balance sheet replenished half of banks' losses, but not without exerting high rates and charges, exerted on banks desperate to ensure the ledger balance between their loans and deposits.
    Investment banks that went under did so as a side-blow to the bigger picture because they gamed their financing with hedge funds and prime dealers and borrowed too much short to go long. They misread the timing of the market crash and grossly underestimated the underlying economic cycles. There eventual net losses, which took a few years to calculate, were however far less than originally estimated gross.
    Few bankers may have gone to jail so far but there have been nearly a thousand arrests, mostly in the USA. Prosecutions are in train or pending that will take a decade or more to complete. Shareholders were severely punished, short-traders got rich for a time, and bonus-earners stayed rich years longer than they should.
    Millions of non-bankers lost their jobs, but no more than expected in a normal recession. The real calamity is the slowness of recovery in output and jobs and, in Euro-land and the money markets, the cold-hearted and greedy responses to the plight of small countries only guilty of enthusiastically following examples set by larger 'credit boom', property obsessed, trade deficit economies. without whom export surplus countries Germany and China can not keep growing.

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