Kenneth Rogoff: History will rue US and Europe debt woes
[Kenneth Rogoff is professor of economics at Harvard University.]
Will 23rd-century historians look back on today’s fiscal follies with the same mixture of bemusement and disdain with which we now view the financial affairs of 18th-century French kings? Policymakers throughout the world are trying to find ways to stabilise government debts, now approaching record postwar levels. As US legislators fumble towards a budget deal, there is the laudable bipartisan Bowles-Simpson commission report. But too many remain sceptical of the need for prompt action at all.
Throughout industrialised nations, debate continues over how fast to withdraw post-financial crisis stimulus. Too many want to follow the lead of the US, which has consistently increased its dependency on debt finance. Too few follow the UK, whose government aims to stabilise debt-to-income levels over several years, while also scaling back a crisis-accelerated explosion of government spending.
Normalising fiscal policy in the long aftermath of a deep financial crisis is a delicate task. The key is to see the bigger picture. Even if today’s government bonds seem pristine by the standards of pre-revolutionary France, future scholars will see our tax systems as Byzantine labyrinths funnelling money to powerful interests, creating staggering inefficiencies. They will surely be incredulous to see pensions and health insurance financed via Ponzi schemes as transparently unsustainable as the 1700s South Sea bubble. And will they believe that, back in the 21st century, there was no mechanism for putting insolvent financial institutions into bankruptcy?..
Read entire article at Financial Times (UK)
Will 23rd-century historians look back on today’s fiscal follies with the same mixture of bemusement and disdain with which we now view the financial affairs of 18th-century French kings? Policymakers throughout the world are trying to find ways to stabilise government debts, now approaching record postwar levels. As US legislators fumble towards a budget deal, there is the laudable bipartisan Bowles-Simpson commission report. But too many remain sceptical of the need for prompt action at all.
Throughout industrialised nations, debate continues over how fast to withdraw post-financial crisis stimulus. Too many want to follow the lead of the US, which has consistently increased its dependency on debt finance. Too few follow the UK, whose government aims to stabilise debt-to-income levels over several years, while also scaling back a crisis-accelerated explosion of government spending.
Normalising fiscal policy in the long aftermath of a deep financial crisis is a delicate task. The key is to see the bigger picture. Even if today’s government bonds seem pristine by the standards of pre-revolutionary France, future scholars will see our tax systems as Byzantine labyrinths funnelling money to powerful interests, creating staggering inefficiencies. They will surely be incredulous to see pensions and health insurance financed via Ponzi schemes as transparently unsustainable as the 1700s South Sea bubble. And will they believe that, back in the 21st century, there was no mechanism for putting insolvent financial institutions into bankruptcy?..