…borrowing large sums of money year after year is unsustainable and a sure sign that something is fundamentally wrong with your economy.
Why? Please explain in terms of macroeconomics and things like monetary policy, zero lower bound interest rates and QE, and without reference to household budgets.
Partly my question is facetious, because I suspect people say things like this because ‘stands to reason, dunnit?’. But partly I ask because I just don’t understand.
For example, why is this wrong (quoting a Nobel laureate economist, taken from Wikipedia)?
“Deficits are considered to represent sinful profligate spending at the expense of future generations who will be left with a smaller endowment of invested capital.
This fallacy seems to stem from a false analogy to borrowing by individuals. Current reality is almost the exact opposite. Deficits add to the net disposable income of individuals, to the extent that government disbursements that constitute income to recipients exceed that abstracted from disposable income in taxes, fees, and other charges. This added purchasing power, when spent, provides markets for private production, inducing producers to invest in additional plant capacity, which will form part of the real heritage left to the future. This is in addition to whatever public investment takes place in infrastructure, education, research, and the like. Larger deficits, sufficient to recycle savings out of a growing gross domestic product (GDP) in excess of what can be recycled by profit-seeking private investment, are not an economic sin but an economic necessity. Deficits in excess of a gap growing as a result of the maximum feasible growth in real output might indeed cause problems, but we are nowhere near that level.
Even the analogy itself is faulty. If General Motors, AT&T, and individual households had been required to balance their budgets in the manner being applied to the Federal government, there would be no corporate bonds, no mortgages, no bank loans, and many fewer automobiles, telephones, and houses.”