A theme which frequently pops up in current financial and economic commentary is that of the burgeoning levels of outstanding debt under which all too many nations are said to groan. Typically, reference will be made to the percentage of GDP which this mountain of obligations entails, usually by way of putting it into a context which is deliberately slanted to be alarming. But how valid is this comparison?
No Austrian will, of course, be insensitive to rising indebtedness – especially where the majority of these debts are conjured up by the banking system in the form of what used to be called ‘fictional capital’ or else, having started out benignly enough as the creditors’ ex ante savings, they have since been monetized by said banks and so have contravened their originators’ expressed time preference.
The reader may be aware that the reason we followers of Mises, Hayek, et al, object to this latter practice is that it allows multiple claims to be simultaneously exercised over the one quantum of goods whose original loan would otherwise have denied their use to more than one person at once. After all, it is all very well for me to lend you my bicycle – whether you intend to use it in your job as a mail courier or simply take it for a pleasure ride – but it is no good then furnishing countless others with duplicate keys to the bike lock and telling them they are all free to go ahead and use it wherever they may find it temporarily chained.
However, much of the contemporary treatment of elevated debt levels rests not so much on such a fundamental objection as this as on a series of half-truths and outright fallacies.
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