Public Debt in a Post Pandemic World - Barry Eichengreen
Public debts have exploded to levels unprecedented in modern history as governments respond to the Covid-19 pandemic and ensuing economic crisis. Their dramatic rise has prompted warnings about the dangers of heavy debts on economic growth and the burden for future generations.
However, the ability of governments to issue debt has played a critical role in addressing emergencies―from wars and pandemics to economic and financial crises, as well as in funding essential public goods and services such as transportation, education, and healthcare. The capacity to issue debt has been integral to state building and state survival. Transactions in public debt securities have also contributed to the development of private financial markets and, through this channel, to modern economic growth.
Debt problems, debt crises, and debt defaults do occur. But these dramatic events, which attract much attention, are not the entire story. Identifying the factors behind rising public debts and the circumstances under which high debts are successfully stabilized and brought down throughout history, can inform the role of public debt in managing the Covid-19 pandemic and recession, and suggest a way forward once governments finally emerge from the crisis.