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Debt, deficits, and inflation

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  • Forrest Capie
  • Geoffrey Wood

Abstract

This article sketches the theory of debt finance and cites historical evidence on the sustainability of debt. If it is accepted that the future should under the current circumstances of COVID‐19 help to alleviate the problems of the present, then debt finance is in principle appropriate. It need not lead to an explosive rise in the debt‐to‐GNP ratio. British history shows that the theory can work in practice. A satisfactory outcome, however, depends on government being reliable, honest, and competent. Trust is easily lost and hard to restore.

Suggested Citation

  • Forrest Capie & Geoffrey Wood, 2021. "Debt, deficits, and inflation," Economic Affairs, Wiley Blackwell, vol. 41(1), pages 38-50, February.
    • Handle: RePEc:bla:ecaffa:v:41:y:2021:i:1:p:38-50
    DOI: 10.1111/ecaf.12447
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    References listed on IDEAS

    as
    1. Olivier Blanchard, 2019. "Public Debt and Low Interest Rates," American Economic Review, American Economic Association, vol. 109(4), pages 1197-1229, April.
    2. James M. Buchanan, 1964. "Confessions of a Burden Monger," Journal of Political Economy, University of Chicago Press, vol. 72(5), pages 486-486.
    3. E. J. Mishan, 1963. "How to Make a Burden of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 71(6), pages 529-529.
    4. Olivier J Blanchard, 2019. "Public Debt: Fiscal and Welfare Costs in a Time of Low Interest Rates," Policy Briefs PB19-2, Peterson Institute for International Economics.
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    Cited by:

    1. Behrooz Gharleghi, 2023. "Debt and currency value during COVID‐19 in the Global South," Economic Affairs, Wiley Blackwell, vol. 43(2), pages 201-210, June.

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