Worrying about public debt is deeply unfashionable. But so, until not long ago, was worrying about inflation
Save time by listening to our audio articles as you multitaskThe actual figure for this year will be about 98%. That nobody worries much about it any more shows how far economists have rethought the limits on government borrowing in an era of low interest rates. Over the past decade they and many politicians have come to see the panic over debt and deficits of the early 2010s as a mistake.
Everywhere debt will continue to offer a tempting short-term fix. And although ageing populations are a drag on government budgets, Central banks can raise real interest rates temporarily to fight inflation. But the only way real rates can stay persistently high is if the savings-investment balance shifts. Some economists have suggested that this may indeed happen as ageing proceeds. Don’t workers saving furiously on the cusp of retirement become pensioners keen to splurge on cruises and cabernet?
The paradox of ageing is thus that it both pushes up government spending and makes possible cheap financing of that spending. In fact, without governments readily running up debts the downward pressure on interest rates in recent decades might have been greater. The tripling in rich-world public debts between 1971 and 2017—from about 20% of combinedto about 70%—left rich-world interest rates 1.
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