It would be easy to claim that the central theme and key dividing line in politics and economics is presently found in attitudes towards government debt. While we are all familiar with the Left's and the Right's position on this issue, there seems to be a third, Green or economic sustainability based, approach forming, which cuts across these two established camps, and could be expected to form a key permanent third side in this on-going debate.

First, to set the scene, a recap on the main two Left and Right groups within the government debt debate. These two groups I will call the 'Keynesians' and the 'Austerians' (a term meaning austerity supporters, used by Professor Paul Krugman in his book: “End This Depression Now!”) The Austerians see rising government debt as a sign that a population is living beyond its means and storing up problems for its future. They see government debt as contributing to the increase in the non-productive parts of the economy, at the expense of the growth producing private enterprise sectors. They view austerity as a short-term painful adjustment, designed to achieve a return to longer-term affluence and economic health. They also view Keynesian policies as inflationary, which further pits those with wealth or fixed investment incomes (generally the older generations) against the poorer and the young who are suffering low wages and high unemployment.

In contrast avid Keynesians such as Krugman believe that the key problem of our economies is lack of demand, due to consumers and businesses paying off debts and not having confidence in the prospects of the wider economy. For them the answer is for the government to be the 'spender of last resort' and pump into life the labour and capital / plant resources that are presently lying idle. For economists such as Krugman, the moral overtones of the 'living beyond our means' line of criticism is flawed, as it mistakes the qualities of an open system experience of, for example, a family or business, with the closed system characteristics of a circular flow economy, where my spending is your income.

To extreme Keynesians like Krugman, government debt is money being borrowed by the part of the economy which, in a recession, is the most able to bear the costs and risks of borrowing, and being lent to the government by those who have cash to spare, but fewer viable opportunities to invest, again due to the recession. This money is then being injected into an economy with a high proportion of inactive labour and resources ready to soak it up; therefore it is not as inflationary as it would otherwise be in better times. While the Austerians see debt as saddling future generations with higher taxes, the Keynesians see debt spending as giving greater hope to the present young by giving them greater opportunity now and over the next few years. The experience of the 1930s and 40s shows that this Keynesian scenario is believable. . . . But is this time different?

In the spirit of the above quotes, both of the groups considered could be accused of using the crisis to further objectives and beliefs which they had always held. In the desperate atmosphere of a seemingly endless and politically charged recession, elements of the Right and the Left get to think and propose the previously unthinkable. In other words the extraordinary times lead many diverse groups to believe that their pet “alternatives” will indeed become “politically inevitable.” Right wingers get to propose market orientated restructuring and reform of key state services, on the back of tighter expected budgets. Left wingers get to propose bold progressive / anti big business tax policies, nominally justified by the need to pay down borrowing, but kind of satisfying their egalitarian principles at the same time. Resulting initially from this contrasting interpretation of government debt, politics generally becomes more polarised. This is especially true in the U.S. where the typically American problem solving, assertive disposition and polarised media, is spitting out all kinds of interest groupings and radical opinions.

This brings us onto the third 'Green' grouping in the mix, which I will call 'Sustainablists' as their key attribute is that they consider environmental sustainability issues to be the key factor. I have been led into thinking about this subject after noticing the strong anti government borrowing stance in Richard Heinberg's “The End of Growth”. Previously the environmentalist element in society I had perceived as broadly supportive of government led and anti free market policies. But recently, as other sources have also confirmed, their economic and political path seems to be more distinctly diverging from that of the traditional left, as expressed by the following:

“The Keynesians still see the world through the lens of the Great Depression. During the 1930s, industrialised countries were in the early stages of their shift from an agrarian, coal-based, rural economy to an electrified, oil-based, urban economy—a shift that required enormous infrastructure investments (in new highways, airports, dams, and power lines) that would ultimately pay off handsomely for a nation on the verge of realising a consumer utopia. All that was needed to initiate the building of that infrastructure was credit—grease for the wheels of commerce. Government got those wheels rolling by taking on debt, with private companies increasingly taking the lead after World War II. The expansion that occurred from the 1950s through 2000, as that infrastructure was built and put to use, easily justified the government pump-priming that initiated the process. Future payments of interest on the government debt could be ensured through growth of the tax base. Now it’s different. . . . Both the U.S. and the world as a whole have passed a fundamental crossroads characterised by increasing scarcity of energy and minerals. Because of this, strategies of growth that worked reliably in the mid-to-late 20th century – via various forms of business and technological development – have reached a point of diminishing returns.” ^{(Heinberg, p 100-101)}

These are strong points, but here also it is possible to play devil’s advocate and argue that the Sustainablists are seeking to “[n]ever waste the opportunities offered by a good crisis.” To the Sustainablists, the 'hair shirt' of austerity is more environmentally friendly than Keynesian stimulus. Austerity in the short term provides zero growth, which is inherently the Sustainablists’ ideal outcome. Furthermore, austerity is likely to produce an atmosphere of crisis (see Greece!) and for a group seeking a fundamental change in the consumer values of society, this atmosphere is more desirable than maintaining or prolonging the capitalist / consumerist status quo through borrowing.

“All of the solutions to our growth-based problems involve some form of self-restraint. . . . The sustainability revolution will occur. The depletion of non-renewable resources ensures that humankind will eventually base its economy on renewable resources harvested at rates of natural replenishment. But that revolution will be driven by crisis. The crucial question is, how serious will that crisis have to be to get our collective attention and force us to change our behaviour?” ^{(Heinberg, p 265)}

If Keynesian policies come to the rescue and return economies to business and consumption as usual, the Sustainablists will lose their crisis and could perceive it as unhelpfully delaying the day of reckoning for the profligate system. In Heinberg's book he supports local cooperation and grass root groups as a partial response to economic hardship: “At the same time, tax-starved governments are hard pressed to step in to make services available to rapidly expanding rolls of unemployed. At such a time, it could be helpful to explore new and innovative ways of fostering self-sufficiency through the coordination of a variety of cooperative, non-profit, market-based, and government-led ventures that spring from, and are adapted to, unique local conditions.”^{(Heinberg, p 277)}

If Keynesian policies got people back to work and out of worry, would people be less inclined to turn up to grow potatoes on city land, or engage in local currency projects as odd job men? Heinberg dismisses Keynesianism as a long-term solution more directly and effectively:

“Thus the Keynesian spending bridge today leads nowhere. . . . The Keynesian remedy does not cure the ailment but merely extends the suffering (while increasing government debt to truly toxic levels) . . . There is no “silver bullet,” no magic solution that will turn back the clock to an era of abundant resources and easy growth. For now, all that governments can do is buy time through further deficit spending – ideally, using that time to build infrastructure that will continue to function in the coming era of reduced flows of energy and resources.” ^{(Heinberg, p 101-102)}.

The nature of money creation, that it is born out of debt due to the fractional reserve system of banking, often crops up in diverse economic debates about the economic future right across the spectrum - from internet blogger conspiracy theories about the motives of the Fed, to the more considered themes of the Sustainablists / end of growth groups: “ . . . due to the requirement for interest payments, debt-based currency can only function well in an expanding economy.” . . . Our debt cannot be fully repaid: every dollar saved in the past is owed ever-multiplying returns in the future, yet the planet's stores of resources are finite and shrinking. Claims just keep growing while resources keep depleting – and real prices of energy and commodities have begun rising. At some point it will become clear that this vast ocean of outstanding claims will never be honoured . . .”^{(Heinberg, p 241 & 237)}.

Do the Sustainablists have a point about growing debt generating exponentially growing interest payments, therefore requiring that a country's economy is growing? Is growing debt that requires interest OK as long as at least some economy in the world is growing? This is another area where the objectives of Sustainablists and the Keynesians clash on a fundamental level. If the core principle of Sustainablists is that growth must be finite, then the growing interest requirement of debt pushes against this core objective. No wonder the Greens are becoming more outspokenly anti-Keynesian!

As I have mentioned, I believe this third Sustainablist position will form a increasingly significant third voice to the government debt debate. Everyone will have to make up their own mind which of these three groups is the least opportunistic and most accurate in their interpretation. If I had to choose, I would indeed side with the Sustainablists. Although they may arguably be over egging the present effects of energy and resource shortages, the questions of environmental depletion and non-renewable resources in the long term easily trump all other considerations, especially in view of developing countries like China being able to consume more and more due to their manufacturing and exporting prowess.

But if elites in the West are going to abort a Keynesian style return to consumer led growth as the Sustainablists wish, and instead settle for an austere non growth economy, I believe they have to offer the low income working population / unemployed more than a chance to grow their own food, join co-ops, and do odd jobs in return for local currency as a consolation prize! This is an incomplete caricature of the suggestions Heinberg puts forward, but it does illustrate a point. As we are now all too aware, austerity does not fall evenly upon the population, and a weakness of the Sustainablist approaches to the future is that, in their ideas, there is some, but not enough, conciliation for the less skilled working person, who is bearing and will continue to bear the brunt of austerity.

This is why I believe a certain kind of protectionism will inevitably make its way into rich country politics in the near future, to square this circle and tighten lower end labour markets within non-growing rich countries. Although to be fair Heinberg does mention tariffs in a limited context: “The adoption of a system of tariffs that would allow countries that implement sustainable policies to remain competitive in the global market place with countries that don't.” ^{(Heniberg, p 252)}. It should not be technologically ambitious protectionism which provokes resentment from other countries, and it should consider carefully questions of maintaining industry competition in relation to factors of scale and scope. . . . But this is of course a partisan and perhaps opportunistic “alternative” view also!