Public debt: Not a can to be kicked down the road

Debt-financed spending is one of the easiest paths open to governments that must address slowdowns in GDP growth. But it comes at a cost that must never slip out of consideration

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As countries stare at the prospect of slower economic growth in the post-Trumpian world, the Keynesian answer of fiscal support—financed through additional public debt—is a vanishing option, given the reality of payback burdens reaching unsustainable levels.

Ironically, it is not the usual suspects that are guilty of living far beyond their means by taking the easy way out of borrowing more. More than emerging-market economies, it is advanced countries—the US, UK, Germany and France, to name a few—that are struggling with rising debt and its corollary, higher interest payments. Unfortunately, debt-financed spending is one of the easiest options for fiscal authorities to tackle growth slowdowns. But it comes at a cost. Both immediate and in the future. The initial impact is in the form of a higher cost borne by the government for the money it borrows. The long-range effect is the repayment burden it places on successive generations, which sets back inter-generational equity.