Central Bankers now want governments to spend more and thereby increase their deficits and their nations’ debts in order to stimulate economies around the world. At least they may finally be recognizing their own failure to manage the Panic of 2008 and the Panic’s ongoing aftermath.
Unfortunately, they choose not to recognize their own role, and that of governments, in worsening the Panic and prolonging the Panic’s recovery. They ignore the difference, for instance, between the American Depression of 1920-21, which benefitted from a decided lack of government intervention, either by a Central Bank or by Government, and the American Great Depression, which was potentiated by a Central Bank’s screwed up behavior at the Depression’s outset and heavily extended by Government intervention in the middle of it.
Fed officials and counterparts in other central banks have already forced down interest rates and launched multiple rounds of asset purchases to spur an economic expansion. Many say it’s past time for fiscal policy to step in and take advantage of low rates to funnel money into infrastructure and other projects.
Never mind that those low interest rates are artificial, and when they rise again, the added debt, together with existing debt, will become ruinously expensive even to keep current, much less actually to pay down.
Never mind that
[a]ging populations in developed countries are burdening public-pension programs and sparking fears that tomorrow’s labor force will be too small to pay off today’s debts.
That’s no idle fear. Developed countries’ fertility rates generally are well below even replacement rates, which would simply maintain today’s worker-to-retiree ratio shortfall, not improve the ratio to economically sound levels. The sole exceptions are the US, with a slightly below break-even ratio that’s covered by immigration (and could be better covered with immigration reform), and France, with a slightly above break-even ratio. Government pension programs, whether for government work forces or public programs like our Social Security and Medicare programs (and the States’ Medicaid programs) are at considerable risk, not least because of that ratio.
Andrew Biggs, of the American Enterprise Institute, is on the right track:
…rising government debt will crowd out private investment, making less money available for businesses to invest.
On the other hand, folks like Doug Elmendorf, late of the CBO, and Louise Sheiner, of the Brookings Institution, are dead wrong. They think that
ultralow interest rates should tip the scales in favor of more government borrowing and investment.
No. These pseudo-Keynesian deficit spending policies—at any interest rate—are just excuses to keep expanding Government. Aside from the interest on government debt—which will rise as surely as the sun—crowding out private spending (in favor of growing Government) by driving up the cost of money, including private borrowing for private economy investments; Government spending generally crowds out private spending (in favor of growing Government) by driving up the cost of goods and services and by competing for and absorbing resources that should be left to the private economy’s more efficient use.