Friday, July 23, 2010

Debt and Power

Marginal Revolution was already pretty good, but it has gotten better recently.  Tyler Cowen does a good job of talking about important policy issues:

7. At some sufficiently high debt-gdp ratio, it becomes a foreign policy issue and a big one.  Postwar UK had a high debt to gdp ratio, and to this day it is a fine place, but that debt meant the end of England as a world power, for better or worse.  The U.S. for instance used financial issues to push England around and they basically had to give up on their overseas commitments.  A very high debt ratio here would mean the end of the U.S. as a global world power, again even if gdp does OK.  A global power needs the option of spending a lot more, quickly, without asking for anyone's permission.  Your mileage on a U.S. retreat from the global policeman role will vary, but it's the elephant in the room which hardly anyone is talking about.

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