There is something very odd about the relationship of politicians with debt. However restrictively they may view debt in their private lives, they are usually willing to take a far more expansive attitude about allowing public debt to pile up. And the public itself often seems hardly to notice.

Thus, for example, when Jacob Zuma became president he allowed debt to run away. Thabo Mbeki had brought it down to only 30% of GDP, but nine years later it was 75%, which was absolutely ruinous, with the interest payments on the debt becoming increasingly onerous. President Cyril Ramaphosa has allowed it to escalate even a bit further. Yet while Zuma is rightly excoriated for the looting and state capture that occurred on his watch, he is seldom criticised for having bequeathed this crushing debt burden.

Similarly, Mbeki was bitterly criticised for abandoning the Reconstruction and Development Programme (RDP) though no one pointed out that the RDP was a massive, uncosted, and unbudgeted spending programme which would have soon bankrupted the state had Mbeki not stopped the RDP and brought in the Growth, Employment, and Redistribution (GEAR) programme.

It is by no means clear that Zuma even understood what he was doing. He continually pushed his plan to buy a whole fleet of nuclear power stations from the Russians, doubtless anticipating lucrative kickbacks. But he could never find a finance minister who would sign off on such a plan because it was grotesquely unaffordable. Zuma seems to have had no conception of “unaffordable”, as if he believed the state would always find the money somehow.

When, in 2015, Zuma appointed a completely malleable finance minister, Des van Rooyen – who would doubtless have acceded to Zuma’s wishes – the rand fell 5.4% in a day as the bond markets effectively vetoed Van Rooyen’s appointment.

Blindness

This blindness about what the markets will support also seems true internationally. The most prominent recent casualty of the bond markets was Liz Truss, a determined Thatcherite who, immediately on gaining office, cut taxes in the United Kingdom (UK) without making any corresponding savings. The markets went wild and she was quickly ejected from power. For the bond markets are powerful. Former United States (US) president Bill Clinton used to say that in another life he’d come back as the bond market because it was more powerful than any president.

Yet if one looks how Thatcher behaved, she began by raising interest rates to the high teens to kill inflation, although this produced more than three million unemployed. This, in turn, allowed her to resist upward wage pressure, which she made permanent by cutting back trade union power and cutting public spending. A determined practitioner of “good housekeeping”, her economic policies were essentially a bond dealer’s prescription. It was only many years down the line, when a new equilibrium had been reached, that top tax rates were cut from 95% to 40%.

Thatcher had always wanted lower taxes, but she didn’t rush into that. Truss, on the other hand, seemed to have forgotten all that and went bald-headed for tax cuts – and paid the price.

Yet it’s all very simple. If a government goes further into debt, it has to borrow more, which means it has to sell more bonds. But the bond market will then require a higher yield on those bonds to cover the added risk of a higher debt – so interest rates rise, forcing the government to spend more and more on debt interest payments. And there is also an absolute limit on the market’s appetite for new bonds. There is simply no getting round this.

In both the UK and America the problem was that during World War II both countries cast caution to the winds and spent everything they could in order to win the war, in both cases ending with hideous debts. Britain owed 270% of GDP and was effectively bankrupt while the US owed 113% of GDP. Times were hard in Britain – everything was rationed and a huge effort went into building up exports to help pay down the debt. But the sky didn’t fall and the long-run effect was to make politicians rather blasé about debt.

Nonetheless, great efforts were made to bring the debts down. By 1974 the US owed only 23% of GDP while in 2002 Britain owed only 29% of GDP.

Defence Buildup

However, in 1980 Ronald Reagan was elected with a programme of a huge defence build-up – and much lower taxes. The result was enormous deficits and a rapidly increasing debt. Thereafter presidents made great efforts to bring the debt down, but the fact that George HW Bush lost his re-election in 1992 because he had put taxes up despite having promised not to do so created a strong impression. At the beginning of 1992 he’d had a nearly 90% favourable popular rating after the first Gulf war – but the tax hike was lethal, and he lost the election later that year.

At the same time, traditional Conservatives could not but note that Reagan had got away with large deficits without any real penalty. One began to hear the refrain that “debt doesn’t matter”. And in practice all subsequent US presidents have tended to act as if that was true. In fact, what it meant was that the dollar’s position as, effectively, the world’s reserve currency was shielding it from the ill effects that would have undermined any other currency.

Up to a point this was true: everyone treated US Treasury bonds as the world’s safe haven and the strong performance both of the US economy and US markets meant that there were always plenty of foreigners wanting to invest more in America.

But everything has limits. Trump’s erratic economic policies have seen the dollar devalue and bond rates rise. The US debt is now over $39 trillion (120% of GDP) and there is growing nervousness as Trump’s tax cuts see those figures continue to climb.

And what is true for the dollar is even truer for others. African National Congress (ANC) governments have allowed the debt to climb towards 80% of GDP, although the finance minister, Enoch Godongwana, has put his foot down and is trying hard to curb any further rise. But the ANC keeps coming up with vastly expensive spending plans – bailouts for state-owned enterprises, National Health Insurance (NHI), big wage settlements, and much else besides. But if, for example, the government made any decisive move towards NHI the rand would plunge, interest rates would rise, and in no time we would need an International Monetary Fund bailout. We are teetering on the brink and many of those pushing for more spending simply have no idea how bond markets work.

A similar situation exists in the UK, where the national debt is just shy of 100% of GDP. Yet the Labour party is full of leftish Members of Parliament (MPs) who want higher welfare spending – while all the pressure from elsewhere is for much higher defence spending. Thus at the recent party conference the leadership contender, Andy Burnham, spoke of the need for “getting beyond this thing of being in hock to the bond markets” as if this was merely an unpleasant mental tic rather than a real constraint. Memories of the Liz Truss disaster were too fresh, however, and this remark did Burnham great harm, with one MP saying that Burnham’s words were “like telling someone on a ledge not to worry about gravity”.

Burnham has tried to backtrack but then said that extra defence spending could be done off-balance sheet, as if that got round the problem of rising debt. Burnham’s opponents say that if he became prime minister there would be a major financial crisis. Already UK bond rates have risen to over 5% – higher than either France or the US, though their debts are higher.

In the end, the problem is really about not accepting trade-offs. It is transparently obvious that if Labour wants to increase defence spending, it will have to make welfare cuts. Or that if the ANC really wants NHI, it will have to make huge spending cuts elsewhere. But since this is too painful, politicians attempt to have their cake and eat it – and so the debt gets bigger.

Electorate

In the end the problem is often that the electorate itself doesn’t accept such trade-offs. France offers the clearest example. It has a generous state pension system, which pays out at age 60. As life expectancy has increased this has become unaffordable, so President Emmanuel Macron increased pensionable age by a few years – though still not enough. The result was a huge public rebellion that has ended up by Macron’s reform being shelved – despite the fact that he was quite correctly warning that without a major change, the pension scheme would go bankrupt.

So here we are again, approaching a new French presidential election with a new centrist candidate, Edouard Philippe, promising pension reform, just as Macron promised it five years ago…

In the end this problem will not get solved until the French electorate accepts that it can’t have one of Europe’s most generous pension systems unless it accepts reform. The problem is that in effect voters are likely to insist on having their cake and eating it until the pension system collapses, at which point they will blame the politicians who let that happen.

General Charles de Gaulle was well aware of this tendency of French voters to demand incompatible things, and so he brought in a very determined usage of referenda, backed up by his own large authority. In his day, the burning question was Algeria. The war there had dragged on for years, was unaffordable, and voters wanted it to end. But they also passionately wanted to keep Algerie francaise – which meant that the war would continue. So De Gaulle forced them to choose, putting the issue to a series of referenda, each time threatening to resign unless voters accepted the policy he wanted. It was dramatic, high-risk stuff since no-one doubted that De Gaulle would indeed resign if he didn’t get his way.

But once De Gaulle had gone, lesser politicians had no stomach for such high-wire risks. Those who attempted to win easy victories by asking questions with obvious answers immediately got their faces smacked by low turnouts, a high non vote and general disdain. Hence it is many years since a French president risked a referendum.

Yet it seems clear in retrospect that Macron should have put his pension reform to a referendum, asking whether voters would prefer an increase in pensionable age or a very large tax increase – and making it clear that he wanted the former.

Instead, Macron foolishly dissolved Parliament and his party lost its majority, making him a lame duck. He clings on with desperately low popularity ratings. Surely it would have been better if, like De Gaulle, he had made it clear that he would resign if he lost the referendum – and had indeed resigned if he lost? At least Macron could have gone out with his principles intact and his head held high.

Not Only France

This doesn’t apply only to France. In many democracies the large old parties of right and left have lost ground and there is a far more fragmented political spectrum, making decisive government much harder. In Britain, for example, it is difficult to imagine any party on its own being able to enforce major cuts in welfare in order to fund a defence build-up, though it’s what the country and the situation require.

In Germany the once-dominant Christian Democratic Union/Christian Social Union has fallen behind the Alternative for Germany and now struggles to govern even with a three-party coalition. As we know, South Africa’s situation is much the same.

In all these cases a resort to direct democracy could be useful in resolving deadlocks and cutting Gordian knots. With national debts at record levels across the board, many countries are going to find it hard to cut their debt down to size without recourse to such measures. And direct democracy cuts through a situation where voters are pushing for incompatible objectives and are thus liable to complain whichever way the decision goes.

To such people it says: very well, you make the decision then – and no more complaining.