So apparently pretty much every country in the world has a national debt that is ever increasing. Different elected governments try to enact savings to stall the debt growth with varying degrees of success, yet always the debt grows. Often I hear it said “we cannot afford these social changes, the national debt increase is not sustainable” etc.
So please, if you can to me how national debt works and what is too much?
In: Economics
First, let’s get over a misapprehension you have. Not every government is in debt, and not every government is increasing its debt. Many governments have worked to pay off their debt, it just doesn’t make headlines. My country’s debt peaked in the late 1990s, but has been decreasing ever since, only seeing brief deficits during the 2008 financial crisis and the 2020 COVID pandemic.
Now to the meat of your question. How much debt is too much? You’re not gonna like this answer: it depends. Generally speaking, any total debt below 100% of GDP is fine. It’s manageable. Above that, several factors begin to become relevant. First, interest. Some governments spend a substantial portion of their budget on just interest payments, while others spend barely a thing. If you can’t pay your interest, you’re screwed. That leads us nicely into point two: stability. If people are confident that your government isn’t about to go bankrupt, they’re more willing to lend you money, which in turn makes your “debt cap” higher. If you’re an unstable government with tenuous rule of law where your money might disappear at any second, you’re much less likely to receive loans. Third, the security of your economy. This ties into the first two points, but a larger and more diversified economy will have a lot more lenders than a petrostate, because their continued prosperity is mostly guaranteed, while the wealth of resource nations is dependent on the value of that one product.
Judging by your last point, I’m guessing you’re American. The American national debt concern is mostly overblown. Yes, the American government currently has a huge budget deficit, but America is also the largest and most stable economy in the world, probably in all of world history. There has never been a safer horse to bet on. Yes, social programs are expensive, but America has a huge tax potential (i.e. they can raise their taxes a lot more than other countries). The only limitations on the debt (you might’ve heard about the debt ceiling or a government shutdown) are political rules that can be withdrawn at will.
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