It seems that most if not all advanced economies (US, Japan, UK to name a few) have been running budget deficits since basically the last 20 years. I understand that current debts lose value over time because of inflation and economies grow, but how can they do this for basically ever? I can’t wrap my head around the maths that makes this possible, and the markets don’t seem all that worried
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Government has one power that no individual has – taxation. When it needs funds, it can tax.
With that framework, the goal of spending is to drive economic growth. More growth equals more potential revenue from taxation. The ebb and flow of this is showcased over time.
With that said, citizens don’t want too much taxation – and if the government keeps running a surplus, that’s bad. It should either spend more on growth or tax less.
So what’s the end game? Either the growth works and the debt can be serviced and paid for over time. Or the policies fail and the government fails, leading to economic collapse for a period of time.
You can see both outcomes playing out in various places worldwide.
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