Incidental note:
You might think there is a contradiction between Mike’s claim that the
debt doesn’t matter, and the jaundiced view of national debts expressed by
David Hume in the right hand column of this blog. The two are actually
compatible, and for the following reasons.
David Hume is concerned with where a government aims to raise money for
public spending AS A SUBSTITUTE for taxation. In that case there is no effect
on demand (or at least influencing demand is not the object of the exercise). And it is very questionable
as to whether governments should ever do this – certainly in the case of current
spending. Moreover, even the popular and “common sense” view that governments
should borrow to fund capital spending is very debatable. See here.
In contrast, to borrowing as a substitute for tax, there is expanding
both borrowing and spending. That is widely regarded as raising demand
(especially if interest rates are held constant or reduced). I’m not saying I
think that’s the best way to raise demand, but certainly that’s a different
kettle of fish to what concerned David Hume.
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