Why? Because, Dillow argues, future generations will be richer than our own, and it is basically OK for the relatively poor to affect a transfer of wealth from the relatively rich.

This is a Robin Hood economic argument that I find utterly immoral. Sure, the idea of taxing one set of people to support another is nothing new. In countries such as Zimbabwe and North Korea money is routinely taken from the poor to support the rich elite. Democracy does not put up with that and votes for the reverse.

So in every true democracy, in every civilized country that I can think of, money is transferred via the tax system from the rich to the poor. Few of us have a problem with the principle, even if the detail can sometimes raise objections. But the point is that in a democracy we have a vote, and a vote gives us a chance to influence events.

There are two things wrong with Dillow’s argument, the first of which is that there is no guarantee that the UK will prosper and generate enough surplus cash to pay off old debts. Admittedly this is unlikely… but what is certain, and this is where I really take issue with Dillow, is the fact that the future generations who will be saddled with these debts have no say in the matter.

Our children and grandchildren have no vote, and those that have not yet been born certainly don’t have one either.

What will these descendants of ours think in ten, twenty and thirty years’ time when they look back at these decades? The Labour government will borrow something like £50bn this year. Will future generations look back and say, ‘That was money well spent. That was invested wisely. Thanks to the money spent back then, we are now benefiting’.

I don’t think so

I can think of circumstances where it is fair for governments to borrow money. The first of these is to defend the nation. The most famous government debt of all was War Loan, issued in 1917 to finance the war effort.

Subsequent generations can hardly object to that, because without it they might never have come into existence. It is also possible to make the case for borrowing if the money raised will be used in such a way as to improve the productivity of the economy. A motorway built today will benefit the country for years to come and so why should those who will enjoy the benefits in the future not pay for it? You could just about make the same argument for schools.

But borrowing is a habit that should be discouraged. It is a slippery slope.

The real scandal of the 10p tax climb-down was not that the Government had to revise its budget. That just made it look stupid. The real scandal is that rather than go back and say, ‘Well if I must give £2.4bn to the 10p tax losers, I must take it from somebody else,’ Darling simply borrowed the money. He borrowed money that will have to be raised from some future generation through the tax system in order to save his party’s political skin.

Given that his promise to ‘balance the budget over the course of the economic cycle’ has not been kept, Gordon Brown perhaps regrets having made it in the first place. But it was at least a good idea in principle.

Governments should live within their means, and if they do so they will at the very least set a good example. If governments resort to borrowing as soon as they find that balancing the books is politically inconvenient then they are hardly in a position to criticise citizens from doing the same.

Far too many people in this country are able to get what they want now, because they borrow money without really knowing how they will pay it back. Some of these chickens are now coming home to roost as bailiffs knock on doors and repossess houses.

Debt is not a good thing. Mr Micawber recognised this. Mrs Thatcher recognised this. Even Gordon Brown paid lip service to the principle of living within one’s means. Debts have to be paid somehow and at some time… and this generation that should take responsibility for its debts, and for making ends meet.

The last thing we should do is to dump the problem upon our children and our children’s children.

Source: Don’t Let’s Rob Our Grandchildren! 

Buenos Aires, Argentina May 26, 2008

Upon my arrival at home last Friday, my wife approached me with the following question: “What is the UNASUR?” Initially, I really did not know how to respond… I already have answers to some of her questions related to domestic issues such as why she cannot spend more money, why I have my clothing all messed up, who ate something, and others … but explaining the UNASUR really left me with no immediate answers at all.

To give you a little background, last Friday twelve South American countries formally ratified the Union of South American Nations Treaty (UNASUR), a regional integrative initiative going back informally to 2004. UNASUR hopes to strengthen Latin American and Caribbean unity by working together to create solutions to persistent regional problems while at the same time respecting the sovereign rights and territorial integrity of the individual member states. UNASUR hopes to achieve these goals through the development and implementation of policies addressing a diversity of issues such as those related to politics, economics, social and cultural issues, the environment, energy, infrastructure development and more. It is hoped that through addressing these concerns, solutions will also be found for the ongoing problems related to persistent poverty, social exclusion and inequality.

The members of UNASUR are Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Guyana, Paraguay, Perú, Surinam, Uruguay and Venezuela. To give you an idea of the importance of the region constituting this union: it includes 388 million citizens with a combined GDP of $ 1.9 billion, (3.5% of the world’s GDP).

UNASUR will be headquartered in Quito, Ecuador and consist of four main bodies: the Council of Heads of State and Government, the Council of Ministers of Foreign Affairs, the Council of Delegates, and the General Secretariat. It will also create a South American Parliament, seated in the city of Cochabamba, Bolivia.

One of those most delighted by the creation of this new union was Brazilian President Lula who pointed out that: “we shall move forward with innovative projects and will fully attain the goal of financial and energetic integration, as well as that of realizing the improvement of regional infrastructure, and the creation of a social cooperation agenda.” Lula, as always, has in mind ambitious ideas where of course, Brazil takes the lead in initiatives.

In reality, the creation of UNASUR has taken many by surprise as it has happened at a moment in history when the union of so many countries seems unimaginable.

Relating to this idea, we should be mindful that this union was created at a time when many Latin American countries have reached a powerful level of macroeconomic and institutional consolidation; achieving international recognition as having gained the much desired investment grade for many of its countries.

The establishment of regional blocks is more viable now with the consolidation of the economy and institutions within these countries, coupled with a long-term vision. The regional blocks of the past have not reached significant achievements in the long run due to difficulties within their individual countries, recurrent crisis and political instability. Mercosur serves as a prime example of these kinds of problems.

In the instance of UNASUR, there is a political and ideological fragmentation among many of the signatory countries. There are countries with serious internal problems such as Bolivia. Venezuela and Argentina are plagued with internal issues as well, but to a lesser extent. There are also member state conflicts such as those between Colombia, Ecuador and Venezuela. Additionally, there are ideological divisions between several countries that make it very difficult to imagine how those countries could go forward with the successful coordination of policies.

UNASUR’s successful unification of regional forces having benefits realized by all member states will depend in part on the influential leadership of Brazil coupled with the lessening of individual differences between countries.

This brings us to the question: what benefits could UNASUR bring investors in the region? I think that there are no short-term benefits. However, if UNASUR is able to successfully establish itself, it can then contribute to the development of the regional financial market (one of its main stated goals) creating one with stronger depth and liquidity than other financial markets of the region. More importantly, UNASUR can contribute to the strengthening of the regional economies, underpinning their growth and development which will benefit the investor who will then find less risk and more profitability in their investments in the region.

The UNASUR has just been born. It will be necessary to give it time to grow and develop. We hope that the countries comprising this new group allow this to happen.

We will meet again tomorrow,

Horacio Pozzo

Editor’s Note: A new community in South America is born with a variety of diverse and complex objectives spanning cultural, social and economic realms… another aim is the social inclusion, the civic participation, the strengthening of democracy for all… Horacio’s wife is asking questions and Horacio finds he does not know how to respond. If you want to know, keep on reading… Enjoy, and send your comments to the editor here: paola@latinforme.com