In Defense of Public Debt

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Public debts have surged to unprecedented levels as governments responded to the COVID-19 pandemic, leading to dire warnings about the potential negative impacts on economic growth and future generations. This book presents a counterargument, emphasizing the historical importance of public debt. It illustrates how government borrowing has been crucial in addressing emergencies—ranging from wars and pandemics to economic crises—and in funding vital public services like transportation, education, and healthcare. The ability to issue debt has been essential for state building and has also fostered the growth of private financial markets, contributing to modern economic development. While acknowledging that debt issues can lead to crises and defaults, the narrative emphasizes that these events do not represent the full picture. The book balances the discussion by exploring two millennia of public debt history, utilizing a comprehensive database to analyze the factors driving rising debts and the conditions under which they can be reduced. It also addresses the role of public debt during the COVID-19 pandemic and proposes a path forward for governments facing heightened indebtedness as they emerge from the crisis.