Why are most countries in debt, who do they owe, and what are the consequences? Why do they go into debt in the first place?
In: Economics
Self development within your own means is very difficult. Either a country owns some immensely valuable natural resource (and can defend it), steals/appropriates wealth from others (empires), or borrows (most modern economies).
Say you start with a country that has a lot of farmers using hand tools and buffaloes to work the land and transport stuff. Clearly that country can become much more productive if it built proper roads, obtained machinery and upskilled their farmers. But expecting the farmers to become more productive or save enough to purchase these items is likely impossible. So a reasonable and “good” government borrows money to build these things and hope that the additional productive output from the citizens in the future allows them to tax enough to pay back these loans.
Governments borrow from banks and other citizens mostly. Occasionally, governments borrow from other governments although that is rare. Governments borrow by issuing bonds (essentially give the government money to obtain a promise of repayment in the future). Bonds are generally sold to anyone.
Like any borrowing, there are good reasons to and bad reasons to. There are very productive reasons to borrow and very unproductive reasons to borrow. Consequences depend on how well the money is spent. Not all debt is bad – in fact, one could argue that most debt is good since the global economy has grown significantly in the last 100+ years.
Nearly every country has electricity, mobile phones, can access the internet, transportation and reasonable housing, education and also some healthcare. Wealthier countries all have degrees of social welfare and healthcare for the elderly and free education. None of these are “free” – they all take resources and, most of the time, governments provide these resources ahead of when their citizens have actually earned them. Governments build schools today and hire teachers so that the children of today can become better skilled and earn more in the future.
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