Auxiliary programs against the crisis: the limits of state debt

The States would do well to take in a pandemic as an insurer against an even worse slump in the economy, money in Hand, because for such a crisis, no comprehens

Auxiliary programs against the crisis: the limits of state debt

The States would do well to take in a pandemic as an insurer against an even worse slump in the economy, money in Hand, because for such a crisis, no comprehensive private insurance companies exist. Therefore, it was right that the Federal government has become in the March active.

However, the government must also, in the hour of Need, long-term consequences of a significant debt increase concerns. Therefore, it is permissible to doubt whether, in the current Situation, the signs of economic revival are present, debt-financed stimulus programs are necessary.

Support the government may, at the counselor of Economics. Some Economists give the impression, in the face of low interest rates and large purchases of bonds by Central banks of government is to judge the debt fully positive. However, this is a mistake.

An Argument is, as long as the interest rate on government bonds was lower than the growth rate of the economy, could reduce a country over time, its debt burden easily. This is mathematically correct: If the tax revenue rises faster than interest cost for the bonds, it could wipe out a state with a part of his revenue debt. Did Germany in the past years. The assertion by critics, the public debt burden on future generations, hinge in such a case, in the air.

Fatal fantasies of the state plan

This statement is only valid under very restrictive conditions. First, predict whether the interest rate for state bonds over a longer period of time below the growth rate of the economy. Especially in countries with very good credit, like Germany, this has been in the past, although temporarily the case, but for countries with a weak credit rating as Italy, this is not true most of the time.

But also in countries with good credit ratings, the growth rate of the economy may fall below the interest rate of the government debt. This happens when the state funds in unprofitable projects, while profitable projects in the private sector remain. In this case, the state is a threat to the growth potential of the economy. In the current crisis, it is unlikely that the state holds, with its Debt to private companies of credit-financed investments.

Whether this will always remain so, is not safe. The naivety of today with shiny eyes of the most extensive, future-oriented public investment programs it warms, reminiscent of the fatal fantasies of the state plan of economic growth half a century ago.

Updated Date: 19 June 2020, 05:19

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