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Perspectives on debt and deficits

Author

Listed:
  • Paul Krugman

    (City University of New York Graduate Center)

Abstract

Vast countries that borrow in their own currency have enormous latitude to run up debt. It’s not at all clear why this should be an urgent concern for us right now. If r is less than g, if the interest rate you pay on the debt is less than the growth rate of the economy, then the debt to GDP ratio stabilizes even if you run a primary deficit. That says that if you want to run deficits to spend on something productive, you don’t need to worry about a debt spiral. We’re in a world where interest rates tend to be low even in good times; we are in a world which looks a whole lot like a secular stagnation world. In that kind of world, having persistent deficits can actually be a positive thing. If our debt would cause the foreign flow of money to the U.S. to slow down, that would also mean, by definition, a smaller trade deficit achieved through a weaker dollar.

Suggested Citation

  • Paul Krugman, 2019. "Perspectives on debt and deficits," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 54(3), pages 157-159, July.
    • Handle: RePEc:pal:buseco:v:54:y:2019:i:3:d:10.1057_s11369-019-00121-y
    DOI: 10.1057/s11369-019-00121-y
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    Cited by:

    1. Di Domenico, Lorenzo, 2021. "Stability and determinants of the public debt-to-GDP ratio: an Input Output – Stock Flow Consistent approach," MPRA Paper 109970, University Library of Munich, Germany.
    2. Stefano di Bucchianico, 2019. "A bit of Keynesian debt-to-GDP arithmetic for deficit-capped countries," Bulletin of Political Economy, Bulletin of Political Economy, vol. 13(1), pages 55-83, June.
    3. Di Domenico, Lorenzo, 2021. "Stability and determinants of the public debt-to-GDP ratio: an Input Output – Stock Flow Consistent approach," MPRA Paper 110460, University Library of Munich, Germany.

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