Originally Posted by
Stavros
Thus spake the Prince of Pragmatism! I agree with you on one level, but have questions and points to make on others.
First, there is a practical reason. The whole basis of a loan is that it is paid back, indeed, that the person or the bank making the loan also make a profit from the interest charged on the loan. The US Government might be able to borrow trillions at low-to zero interest rates, no such blessing is awarded to Malawi or Chad, because when the investors look at the condition of those economies, they know that loans are too much of a risk. If the State does not have the natural or human resources to generate the money to pay back the loan, an additional, political fact, corruption in government, might also deter. Moreover, debt is internatonal -who actually owns the US debt? Not all Americans.
There have been numerous arguments that the Chinese could dispense with their American investments, and the US economy spiral into free-fall, as was said of the Petro-Dollar dimension to the US investments by Saudi Arabia and the oil-rich Gulf in the 1970s and 1980s. I don't know if this would be done, I think the argument is that if the Chinese or the Arabs 'pulled the plug' as it were, the rest of the world economy would also be adversely affected. As you know more about this aspect of economics, your view on it would be most welcome.
Second, debt goes to the heart of the capitalist economy. You don't need to agree or disagree with either Smith or Marx, but it is clear that what the circulation of capital does, is create the conditions for a profitable return on the investment, while the speculation on the size of that pure profit enables the capitalist to borrow more to fund more investments, the assumption being that nothing will interrupt the circulation, an economic blood clot in the artery, or, as happens to Antonio in The Merchant of Venice, a ship sinking out at sea, taking all his investments with it. When Shylock asks for his share of the investment to be returned, he is merely giving capital investment the moral dimension that libertarian economists try to avoid, which Shakespeare does not.
And yet, these American libertarans, like Rand Paul and Paul Ryan, created a 'debt clock' during the Obama administration to demonstrate the immorality of using 'other people's money' to fund a, b and c when their view is that these decisions ought to be made by the market, and not by Government. Indeed, I read somewhere the other day someone in either the House or the Senate intends to hold Biden's feet to the fire by reviving this dimension of Beltway politics.
What strikes me about the current situation, is that we have rarely in the last 100 years (not sure of the time-line but a long one) ever had such persistently low interest rates in advanced capitalist countries, indeed in some areas negative interest rates.
So, somewhere in this argument, is a dose of pragmatic financing for wealthy countries like the US -I almost added the UK but let's no tempt fate- where debt is a nightmare from which other countries are trying to awake. It will become a political baseball in the US over the next four years, but I return to this peculiar problem of interest rates, because like taxes, I don't think we can carry on without raising them. The UK it seems to me, has got to raise interest rates, and also raise income tax or there will be an endless level of debt, and if economic growth does indeed decline over the next, say five years, then we will have the kind of crisis that you imply in the relationship between debt and growth.