Reply To: Why ever pay down the debt?


Enormous government debt is bad because it transfers an enormous amount of resources from markets, in which they are used efficiently, to the state, in which they are used inefficiently.

The problem with continuing to service the debt when it expands enormously is that doing so takes up an increasing portion of the government’s budget. There comes a point at which it must face a choice between servicing the debt and its other budgetary obligations. Usually, the government delays this choice by monetary inflation. But monetary inflation destabilizes financial markets and causes price inflation, which pushes up interest rates and puts further pressure on the government’s budget from servicing the debt.

But, you’re correct. The government could choose a more prudent course by limiting its other expenditures, running budget surpluses, and retiring debt. If it did so, no catastrophe would inevitably follow.