K-12 Tax & Spending Climate: Democracies and Debt

The Economist:

For a long time, there did not seem to be any limit to the amount democracies could borrow. Creditors have been more patient with democratic governments than with other regimes, probably because the risk of abrupt changes of policy (like the repudiation of Tsarist debts by Russia in 1917) are reduced. But this has postponed the crunch point, rather than eliminated it--and allowed stable democracies to accumulate higher debt, relative to their GDP, than many, more volatile countries ever achieved. Governments can, as Madison suggested, confiscate the wealth of domestic creditors via inflation, taxes or default. But however often they vote, democracies cannot make foreign lenders extend credit. That harsh truth is now being discovered.

Posted by Jim Zellmer at September 18, 2012 2:49 AM
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