Government Debt and the Danger of Historical Growth

In today’s Saturday column,Ted Nesi voices reasoning that is only possible in a society that’s become hubristicly accustomed to economic growth as an inevitability:

If bond investors are offering Rhode Island the lowest interest rates in its history, shouldn’t the state be borrowing more money right now? Gina Raimondo has hinted she’s thinking that way, and there are plenty of infrastructure projects that need to be done soon. Some people are opposed to any and all state borrowing, and that’s fine – but if you’re someone who acknowledges Rhode Island taxpayers will be borrowing money at some point over, say, the coming decade, shouldn’t as much of it be borrowed as possible now, while interest rates are at historic lows and 10% of the state’s workers are idle?

This is akin to the approach of a college student who lives beyond his means on credit, expecting the sort of paycheck that he’s been told to expect, or the entry-level worker who is convinced that his income will catch up with his spending any year now.  For some this works out, but for many (especially over the last decade and a half) it does not.  The money spent under expectations of future income continues to pile up as bills until even a string of healthy raises are insufficient to cover the payments and improve quality of life.  And in the meantime, life continues to happen… marriage, children, illness, and so on.

In other words, it is reckless to undertake debt now, even in order to capture low rates, on the assumption that the economy will improve, not worsen.  Maybe it will, and maybe it won’t, and maybe if it doesn’t, those infrastructure projects that “needed to be done” will seem to be far from necessary in comparison with more dire challenges that have arisen from the fog of the future.

Of course, we also should not delude ourselves into thinking that we can spend money now and then take a break from spending.  For reasons political and practical, that never works out to be the case.  There’s always a project to be done and workers not working.  In bad times, debt seems like a necessary “investment” to maintain the economy and capture low interest rates.  In good times, it seems like a pittance beside the income that people are actually managing to keep for themselves in their own life planning.

But again, the real danger is that good times will never arrive.  At this point, Rhode Island doesn’t even know from where economic growth will come.  It’s not as if our economy is growing and giving signs of acceleration.  Even then, borrowing would be reckless, but at least we’d have some reason to believe that income would catch the debt.

As it is, we’d be borrowing from the future on the blind faith that things will get better, well, because they always do. I’d propose that such beliefs are central to the state’s problems.  That is, we won’t recover until we learn that recovery is not inevitable.

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