Debt, deficits, and inflation

Forrest Capie and Geoffrey Wood

Economic Affairs, 2021, vol. 41, issue 1, 38-50

Abstract: This article sketches the theory of debt finance and cites historical evidence on the sustainability of debt. If it is accepted that the future should under the current circumstances of COVID‐19 help to alleviate the problems of the present, then debt finance is in principle appropriate. It need not lead to an explosive rise in the debt‐to‐GNP ratio. British history shows that the theory can work in practice. A satisfactory outcome, however, depends on government being reliable, honest, and competent. Trust is easily lost and hard to restore.

Date: 2021
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