The US is heading for another debt ceiling showdown between big-spending Democrats in the White House and fiscal hawks in Congress. The UK is being run – still – by a party that considers “debt is bad” an axiom. Both countries will suffer as a result, Andy Haldane, former Bank of England chief economist, argues in the FT. He makes two key points. First, in rich countries like the UK the ratio of public debt to GDP has roughly doubled in each century since the industrial revolution, coinciding with huge uplifts in net wealth – and there is nothing intrinsically different about the 21st Century to end that trend. Second, net financial debt doesn’t factor in intangible assets like good air, clean water and precious IP, all of which can hold down countries’ cost of capital – which remains historically low at around 1 per cent on average. The moral for finance ministers: do not be bound by arbitrary, self-imposed financial rules when the alternative is cheap, enlightened investment in the future.
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