Feature

All debt is not created equal

Instead of succumbing to austerity hysteria, it’s crucial for governments to distinguish between “productive” and “unproductive debt," said Martin Wolf in the Financial Times. 

Martin Wolf
Financial Times

From Washington to Madrid, governments are under pressure to reduce their debt loads, said Martin Wolf. And rightly so. In the wake of the financial crisis and subsequent explosions in government borrowing, debt levels in many countries are “unsustainably high.” But there’s no point in reducing debt “if the result is a poorer country tomorrow.” Instead of succumbing to austerity hysteria, it’s crucial for governments to distinguish between “productive” and “unproductive debt.”

Productive debt doesn’t burden future generations; it enriches them. The U.S. borrowed massively to build the federal highway system, generating a construction boom, expanding interstate commerce, and spurring the tourism industry. Borrowing to fund education, likewise, yields skilled, more affluent workers. Yet the British government wants to slash “almost all state support for university teaching.” Why can’t leaders recognize that “borrowing is no sin,” so long as the funds “bequeath a better infrastructure to the future”?

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