@fanf42 To be honest, I find the blog post a bit confusing. My point is that, from a theoretical point of view, public debt can be good, bad or neutral for the economy. It can be good if it puts resources to use that would not be put to use with a balanced budget (the Keynesian argument)
@fanf42 It can be bad if the demand for scarce capital by the state leads to the crowding out of private investment and private investment has a higher return than public one /
@fanf42 (to be continued after supper)
@fanf42 And it can be neutral if the expectation of higher taxes in the future to service the public debt leads the public to increase its savings (The Ricardian equivalence the blog post refers to) /
@fanf42 In what situation a country is in, is highly context specific. But this is not what Krugman was referring to. The key point is that, if public debt is financed domestically, servicing the debt is a transfer from one category of citizens (taxpayers) to another category /
@fanf42 (bondholders). To be sure, there can be issues with this, especially if bondholders are better off than the average taxpayer. But this is more a social justice issue than an efficiency problem /
@fanf42 What Krugman was repeating that public debt is fundamentally different from private debt, and not just because the state has coercive powers private debtors don't have. The most important indicator of a nation's creditworthiness is it's external balance /
@fanf42 This is actually nicely illustrated with the financial crisis of 2008. With the exception of Greece, the countries that got themselves in the deepest trouble had low public debt but a high current account deficit.
