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Why spending matters

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26.07.2021

By VERONIQUE DE RUGY

A lot of people don’t care about the nation’s growing debt. Some believe that low interest rates for the foreseeable future essentially means a free lunch for the government. Others believe that no matter what the cost of this debt, it is all worth it because of the purported higher returns on government spending. But there is an argument that may convince them otherwise: If inflation ever gets out of control, it’s easier to deal with it in a lower-debt environment.

I believe that high levels of debt are problematic. First, growing debt means growing spending, along with government expanding in size and scope. I like my government small and as unintrusive as possible, so I am not happy about the current spending situation. Second, a review of the literature about the impact of government spending on growth reveals that, generally, such spending crowds out the private sector. This dispels the hope that more spending will produce economic wonders.

Deficit spending will eventually result in higher taxes for future generations. That’s a profoundly unfair burden. Debt is also........

© The Leader Herald


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