Debt Derangement Syndrome

BERKELEY – For the past decade, politics in the Global North has been in a state of high madness owing to excessive fear of government debts and deficits. But two recent straws in the wind suggest that this may at long last be changing.

Earlier this month, I read a Brexit-related column in The Sunday Times of London by the eminent and highly knowledgeable Ken Rogoff. He is perhaps best known for his declarations early in this decade that governments should not let their debt-to-GDP ratios rise above 90%. But here, Rogoff mused that it had “never been remotely obvious to [him] why the UK should be worrying about reducing its debt-GDP burden [currently 84%], given modest growth, high inequality and the ... decline in ... interest rates ...”

This followed a Financial Times article late last month by the journalist Brendan Greeley, who reported receiving what he called “a panicked email” from the Committee for a Responsible Federal Budget (CRFB), a US think tank that once gave a fiscal responsibility award to Paul Ryan, the then-chair of the US House of Representatives Budget Committee. In its email, the CRFB warned against “mischaracterizations” of an address by my old teacher Olivier Blanchard to the American Economic Association, in which Blanchard essentially said that public debt is a tool governments should use when they need to.