Another line of argument against austerity is that public debt is not really a problem. This argument is especially popular now, given that interest rates are generally very low, so debt is not expensive.
We think that this view is problematic for at least three reasons.
First, large public debts imply a redistribution between current generations and future ones who cannot vote. This is simply unfair and needs to be taken into consideration by those who seem to advocate more and more debt. If one considers not only measured public debt but also the state of many pension systems, the picture becomes even more troublesome.
Second, interest rates will not be low forever. Sooner or later they will return to more “normal” levels. With higher interest rates, more and more taxes will be needed to service the debt, reducing growth and generating a potential vicious cycle: high taxes, low growth, debt over GDP ratio not decreasing, and so forth.
Third, in some countries high debt levels may generate default risk, high interest rates, capital outflows (as in Greece), and a debt crisis that may impose austerity when it is particularly costly.
-Alberto Alesina, co-authored with Carlo Favero and Francesco Giavazzi (Austerity)
And then there is the gluttony of our time here in the US where the Federal Govt is making drunken sailor look like pious monks and the lower levels of government are looking at the Feds like as it is Scrooge McDuck. At some point, something that can’t be sustained, won’t. And adding a trillion to our national debt at a whack isn’t sustainable – printing money never is.
So, any over/under for when inflation comes roaring back and makes our money and savings worthless because of that gluttony?
(H/T: Cafe Hayek)