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The Covid pandemic has not helped matters: the debt of most Western governments has soared as a result. Will our governments go bankrupt, and who will foot the bill? While debt can be a catalyst for crisis, it is also crucial to economic growth, because one person’s debt liability is another’s debt claim. If nobody borrows, then nobody can set money aside. In a market economy, Aesop’s fable does not hold true: the ants need the grasshoppers.
As long as households want to save more than private agents are willing to borrow, governments not only can, but should, continue to take on debt. They are not just ‘borrowers of last resort’, they are also ‘insurers of last resort’. Faced with a future fraught with risks, borrowing gives governments a means of investing today to avert at least some of these risks and avoid taking on even more debt tomorrow. If they use their resources wisely, they will not go bankrupt.
This book tackles these issues in an original and thought-provoking way. By looking at the rise in debt from a macroeconomic and empirical viewpoint, the authors highlight the underlying forces while also pointing out the limits to public and private indebtedness.