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Richard M. Salsman

The Political Economy of Public Debt 4. Public choice and public debt The public choice school as it pertains to public finance and public debt is most developed in the works of 1986 Nobel laureate James Buchanan, Richard Wagner, and Geoffrey Brennan. Unlike other approaches, which focus more on the consequences of public debt, public choice focuses more on its causation, particularly on the interaction of politics and markets and on the institutions that distinguish fiscal regimes of frugality and integrity from those of profligacy and perfidy. Public

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Public Debt

An Illusion of Democratic Political Economy

Giuseppe Eusepi and Richard E. Wagner

Over the past decades, economists have witnessed with growing uneasiness their failure to explain the ballooning of public debt in most countries. This book provides an alternative orientation that explains why concepts of public debt that are relevant for authoritarian regimes are not relevant for democratic regimes. Using methodological individualism and micro-economics, this book overcomes flaws inherent in the standard macro approach, according to which governments manipulate public debt to promote systemic stability. This unique analysis is grounded in the writings of Antonio de Viti de Marco, injecting current analytical contributions and formulations into the framework to offer a forthright insight into public debt and political economy.
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Richard M. Salsman

The Political Economy of Public Debt 5. The limits of public debt Having assessed theories of public debt advanced over the past three centuries by classical, Keynesian, and public choice scholars, I turn next to questions concerning the sustainability and ultimate limits of public debt. How much can a government safely, affordably, and productively borrow? How does it best cultivate public credit, that is, its capacity to borrow? Why, when, and how do governments default, and to what effect? Is default sometimes justifiable? What explains the recent

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Thomas R. Michl

Among sensible economists, debates about public debt have gravitated around two polar positions. There is broad agreement that public debt and deficits can play a stabilizing role 1 under conditions of demand failure, and somewhat less broad agreement that in the long run, once the output gap has closed, policies to stabilize or even reduce the debt–income ratio (hereafter referred to as fiscal consolidation) become necessary. Paul Krugman (2011) succinctly summarizes this position as ‘jobs now, deficits later.’ Most of the substantive debates concern timing

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Richard M. Salsman

The Political Economy of Public Debt 2. Classical theories of public debt Classical theories of public debt in the eighteenth century were developed during the Enlightenment, a period dominated by respect for reason, science, and liberal ideas, a greater appreciation (relative to the medieval times) for the virtues of self-interest, the benefits of commerce and finance, and the need for constitutionally limited and rights-respecting government. This political-legal context proved crucial to the development of public credit and debt and theories about each

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Richard M. Salsman

The Political Economy of Public Debt 3. Keynesian theories of public debt Whether or not political economists today endorse a deficit spending state, most acknowledge that the theories of John Maynard Keynes (1883–1946) originated broad debate on the topic. Yet it wasn’t Keynes but influential successors – Keynesians like Alvin Hansen, Abba Lerner, Seymour Harris, Paul Samuelson, Richard Musgrave, and Paul Krugman – who made the aggressive case for public profligacy that Keynes did not. The most strenuous (albeit not so convincing) arguments for perpetual

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Richard M. Salsman

The Political Economy of Public Debt 1. A brief history of public debt A concise history of public debt is a prerequisite to understanding its causes and consequences. Historical context helps corroborate or confute alternative theories and analytical methods. The good news is that hard data on public debt and its history have become more comprehensive, more accurate, and more readily available in recent years. 1 Unfortunately, much contemporary analysis is overly formal, non-empirical, or focused myopically on a narrow subset of public debt history that

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Public debt within systems of monopolistic democracy

An Illusion of Democratic Political Economy

Giuseppe Eusepi and Richard E. Wagner

Public Debt 5.  Public debt within systems of monopolistic democracy The distinction between cooperative and monopolistic systems of democracy is more analytical than empirical. It provides a benchmark for judging conditions under which collective action will be beneficial to all members of the relevant group as against being beneficial to only some members. Systems that operate through agreement among the governed parties fit the rubric of cooperative democracy. It is possible to point to instances of cooperative democracy, so the concept has some

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Giuseppe Eusepi and Richard E. Wagner

Public Debt 6.  ‘Monstrous moral hybrids’ and the corrupting quality of public debt Debts and credits reflect social relationships that continue over some interval of time. Credit transactions could well exceed spot transactions in social significance, and in any case are integral parts of any well-working society. Within the framework of private law, credit transactions are governed by the institutional framework of private property and freedom of contract. This framework tends to generate what can be regarded as reasonably well-behaved credit markets

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Giuseppe Eusepi and Richard E. Wagner

Public Debt 1.  Macroeconomics, fiscal policy and public debt: conflating myth and reality In a well-received and widely cited pamphlet, Leonard Read (1946) elaborated on the simple recognition that no person has the ability to list in detail all of the instructions someone would have to follow from start to finish to produce a pencil. Yet pencils are universally available, and we take for granted our ability to obtain a pencil whenever we wish. It is impossible for anyone truly to describe all of the myriad actions scattered over decades and even