In Praise of Debt Ceilings

The recent wrangling about raising the US government’s borrowing limit underscores the hazards posed by excessive state indebtedness. Governments nowadays are essentially running gigantic redistribution machines that steer funds from taxpayers to transfer recipients and other beneficiaries of public expenditure.

MUNICH – The wrangling about raising the US government’s borrowing limit – now thankfully over, at least for a few months – underscores the hazards posed by excessive state indebtedness. Governments nowadays are essentially running gigantic redistribution machines that steer funds from taxpayers to transfer recipients and other beneficiaries of public expenditure. The latter permanently ask for more, while the former zealously try to defend their purse.

In the end, the solution to this “redistribution battle” tends more often than not to be found in more government borrowing. For today’s democracies, the fact that those who will eventually have to pay the taxes to service the resulting debt cannot yet vote makes borrowing the most expedient way out of a messy political battle.

The lure of borrowing becomes irresistible if it can be assumed that the burden might be shifted to population groups other than those benefiting today from low taxation or higher public spending. That is, for example, the case with childless people: they benefit from public borrowing and manage to shift to other families’ descendants the part of the debt service that will fall due when they are no longer around.

To continue reading, please log in or enter your email address.

To read this article from our archive, please log in or register now. After entering your email, you'll have access to two free articles from our archive every month. For unlimited access to Project Syndicate, subscribe now.

required

By proceeding, you agree to our Terms of Service and Privacy Policy, which describes the personal data we collect and how we use it.

Log in

http://prosyn.org/zmF5H2o;

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated cookie policy and privacy policy.