Commentary

Commentary

 
 
Posts tagged Government debt
Where Governments Should Spend More

As a result of the pandemic, U.S. general government debt (federal, state, and local obligations combined) has surged above 130 percent of GDP, more than double what it was in 2007. And, recent U.S. experience is far from unique. Looking at the G20, average public debt rose from 52% of GDP in 2007 to 74% in 2019 and is projected to reach 91% next year.

Unsurprisingly, as government debt increases, the debate over public spending heats up. Are these high debt ratios sustainable? Should we be cutting spending and raising taxes to reduce what will otherwise be a large financial burden on future generations?

In this post, we emphasize that not all government spending is created equal. Investment in physical infrastructure, as well as in education and health—especially for children—can boost future GDP. Moreover, delaying inevitable outlays can boost long-run costs. As a result, a failure to make productive, self-financing investments due to concerns about the debt would be not only tragic, but counterproductive….

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The euro area's debt hangover

The ongoing difficulties in Greece – combined with the ECB’s dramatic actions to ward off deflation – are distracting attention from what may be the euro area’s biggest and most pervasive problem: debt.

You wouldn’t know it from the record low level of government bond yields, but much of Europe lives under a severe debt burden. Nonfinancial corporate debt exceeds 100 percent of GDP in Belgium, Finland, France, Ireland, Luxembourg, Netherlands, Portugal, and Spain. And, gross government debt (as measured by Eurostat) is close to or exceeds this threshold in Belgium, France, Greece, Ireland, Italy, Portugal and Spain...

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