The national debt has inspired a million boring speeches and exactly one witty remark. “If something cannot go on forever, it will stop,” says Stein’s Law. Coined by the economist Herbert Stein, an adviser to US president Richard Nixon, it was originally about the balance of payments but he used the precise phrase in 1986 to warn Congress that the federal debt cannot rise without limit.
In response to the Covid-19 crisis, the world’s governments seem intent on putting Stein’s Law to the test. This year’s increase in public debt has little precedent outside wartime. According to the IMF, massive borrowing, along with economic contraction, will push the US debt up by more than 30 percentage points to 140 per cent of gross domestic product. Long-term debt projections in many countries are dire. The IMF says global public debt will hit its highest level in recorded history, greater even than the peak after the second world war.
This seems to portend disaster and require corrective action. But while higher public debt has costs — most significantly if it closes off the ability to respond to a future crisis — there is little cause for immediate alarm. The “safe”, or sustainable, level of national debt is ambiguous and is likely to have risen because of slumping global interest rates.