When the next recession hits, as it may well soon, expect another round of furlough schemes, additional benefits and stimulus cheques. When the next industry fails, expect a big rescue package
The true size of the bail-out state is hard to calculate, in part by design. Governments generally do not include so-called “contingent liabilities”, such as guaranteed loans and implicit backstops, in their fiscal figures. This allows them to support the economy while keeping reported public debt down.
Adapting work by James Hamilton at the University of California, San Diego, we have attempted to calculate the total implicit liabilities of the American federal government—in effect, how much it has promised to pay if things go wrong, plus commitments for which it has not fully accounted. In addition to reported public debt, we add off-balance-sheet obligations, including guarantees on people’s bank deposits, health-care payouts and mortgage guarantees .
No one likes to see a business go bust or someone fall into destitution. The fact that this happens less frequently is, on its own terms, welcome. Another benefit of the bail-out state is that people and businesses no longer need to spend quite as much on insurance, since they know the state will step in. In America, for instance, total spending on insurance premiums peaked in the early 2000s at around 8% ofThere are downsides, however, aside from the potentially monumental fiscal costs.
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