Making the case for more government debt
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Samuel Brittan has a beautifully written piece in today’s Financial Times trying to debunk the concerns about the ballooning level of government debt and arguing the case for government borrowing when private sector loans remain weak because of the credit crunch
He flags up some of the traditional arguments against debt-finance (Ricardo debt equivalence and Friedman’s permanent income hypothesis get a mention) but he argues that with monetary policy singularly ineffective and with bond yields at such low levels, extra debt to finance targeted fiscal measures makes sound economic sense. He has a lifetime of economic experience to draw on and his piece is really well crafted. It would certainly suit a top-end A2 student revising about fiscal policy in a recession.
“Of one thing I am sure. If we had the misfortune to engage in a major war, we would have far higher deficits and debts than anything now in prospect and few except some pacifists would worry. The second world war was financed in the UK with a 0.5 per cent bank rate. Why should it be more alarming for governments to get into debt to put people into useful work satisfying human needs than to borrow for guns and tanks whose only aim is to kill other human beings?”
The rest of the article is here
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