TheMarketForIdeas

The public debt formation is the direct effect of a causal mix containing at least the following factors: a) the weak capacity of the private sector to push the economy towards its potential, that requires state intervention by increasing the public expenditures beyond the internal possibility to cover such an increase (in a keynesian or post-keynesian pattern); b) the weak capacity of the public sector (state/government) to collect the taxes and other revenues in society (no matter that this incapacity is due to incompetence or a competent corruption), that requires an alternative source of public revenue, public debt (either internal or external); c) the illegitimate exuberance of the politicians (either Parliament or, especially, the Government) with regards to indebting the nation within a populist (that is, in an unjustified way, without mentioning its unsustainable character) framework of politics (no matter the reasons for such a populism).

In the present intervention, we address the third causal factor of public indebtedness, namely the illegitimate (although legal) one. 

The background 

The dilemma legal-legitimate (or, conversely, illegal – illegitimate) is a common topic in the contemporary political, economic, sociological, and even anthropological debates. Obviously, the significance of the legality/legitimacy pair is different for each of the topics where it is claimed. For example, a Parliament is illegitimate (although legal, if we are under the presumption that the political elections were constitutionally performed) when it (or a relevant part of it) does not promote and defend society's interests anymore, but its own interest (regarding benefits, power, re-election, and the like). Conceptually, the legitimacy of a behaviour, a norm, a decision, and so on, occurs when its goal is identical (or at least isomorphical) to the one that, as expectation, generated the legal possibility of manifesting the behaviour, norm, decision involved (in other words, it has invested someone to exhibit the behaviour, to enact the norm, to make the decision). Although such a definition seems to be somewhat complicated, it is, in fact, very simple, because it claims that the predicate of legitimacy is based simply on the coincidence between the promise and the action towards that promise. Therefore, the legality does not involve, neither logically nor institutionally, legitimacy, and vice-versa – the legitimacy does not necessarily involve the legality. For example, a member of Parliament who defects from the party on whose lists he was elected and enters another party, he does this legally but, obviously, illegitimately, because, in this way, he renounces to represent the interests of his electorate. In the mirror, the popular movement in 1989 in Romania was completely legitimate (taking into account the dictatorial political regime in force at that moment), but it was, obviously, illegal (Nota bene: I would take the opportunity to remind you that only the reform is legal – although, perhaps, illegitimate – while the revolution is always illegal – although perhaps, legitimate).

In this context, I shall introduce the concept of the illegitimate public debt (though this concept has already been in circulation in the specialty literature), by listing the three predicates of its sufficiency:

- it is a legal public debt (the case of illegal public debt is not interesting here, since it simply enters the realm of the ordinary law in force);

- it can be either internal or external, although the literature is especially focused on the external debt;

- its destination (namely, using or effective spending) is not aimed at answering a public interest, but a private one. 

Short discussion 

The first predicate (legality) does not generate any problems – the constitution and the laws must be respected.

The second predicate (the two species of public debt) also does not generate problems – debt is debt. In addition, paying the public debt service (the principal and the interests) often implies an alternative indebtedness – internal for paying the external, and vice-versa.

Instead, the third predicate is much more problematic. I shall develop some specific considerations:

(i) the public interest is that one that is aimed at ameliorating the living or working conditions of the citizens (as individuals or society as a whole). Usually, such public interest is stipulated by the government program (which, in turn, is consistent with the political program with which the government coalition won the elections). Then again, such a “written contract” is not at all mandatory and ameliorating the living and working conditions does not place too many barriers to its knowing and understanding;

(ii) another connotation of the public interest could be the opportunity – this concept is very volatile and here is the place where the illegitimate public debt (that is, that public debt engaged and spent without verifying the three predicates of sufficiency) can arise masked as a legitimate one, namely by using its opportunity.

(iii) I strongly highlight the error (to be avoided) regarding the efficiency of public debt spending. Sometimes, the government will refuse to spend public money to solve some legitimate objectives under the reasoning of its inefficiency. But the public money is not at all and never was under the efficiency commandment, but only under its efficacy and opportunity (nominal, spatial, temporal, and horizonal).

Based on the above, I think there are sufficient (objective, that is, inter-personally debatable and establishable) anchors based on which the contracting and spending of the public (internal or external) debt can be examined and clearly designated as being legitimate or illegitimate.

If public debt is proved to be illegitimate it must, by necessity, imply the responsibility (the illegality of the public debt is subject to accountability, not responsibility). The primary effect of honestly assuming the responsibility for engaging and/or spending illegitimate public debt is of political order: in the short term – resignation, in the medium term – non-re-election, and in the long term – losing the public credibility.

We should add to the idea of replacing the public interest with a private one when engaging and/or spending public debt. The private interest in relation to the public money (or public debt) refers to serving either the interest of the party to which the government belongs or simply the individual interests of a member of government (or of Parliament, as is the case). 

Shorter conclusions 

Of course, establishing the legitimate vs illegitimate nature of engaging public debt and/or spending it is not a simple logical affair. It claims a very fine and, as much as possible, honest and impartial examination. From an institutional point of view, there is not yet a structure that could be empowered with such a verdict (the Constitutional Court is aimed, at most, at establishing the constitutionality). Consequently, a verdict in the matter could be provided by the political opposition only, with its unavoidable partisanship. In my opinion, the civil organizations (the NGOs) and the most credible analysts could play a significant role in denouncing the illegitimacy of public debt under, of course, the condition of their impartiality. If the condition of impartiality (or, at least, of a moral minimum level) is not checked, then white could be presented as black or vice-versa (not so rare as generally presumed, because pecunia non olet). In such a case, things become downright alarming, providing an additional pillar for an economic dictatorship.