In Defense of Public Debt

Abstract

AbstractPublic debts have exploded to levels unprecedented in recent history as governments responded to the COVID-19 pandemic. These rising levels of debt prompted apocalyptic warnings about the dangers of heavy debts—about the drag they will place on economic growth and the burden they impose on future generations. This book adds the other side of the equation: drawing on history, the authors provide a defense of public debt. Their account shows that the ability of governments to borrow has played a critical role in meeting emergencies, from wars and pandemics to economic and financial crises, as well as in funding essential public goods and services such as transportation, education, and healthcare. In these ways, the capacity to issue debt has been integral to state building. Transactions in public debt securities have also contributed to developing private financial markets and, through this channel, to economic growth. None of this is to deny that debt problems, debt crises, and debt defaults occur. But these dramatic events, which attract much attention, are not the entire story. In Defense of Public Debt redresses the balance. The book develops its arguments historically, recounting two millennia of public debt experience. It deploys a comprehensive database to identify the factors behind rising public debts and the circumstances under which high debts are successfully reduced. Finally, it brings the story up to date, describing the role of public debt in managing, from 2020 onward, the COVID-19 pandemic and suggesting a way forward once governments, now more heavily indebted than before, finally emerge from the crisis.