Abandoning a Moralistic View on Debt

Ha-Joon ChangHa-Joon Chang is one of the ten most influential world thinkers according to Prospect Magazine. In this brief interview at TheCorner.eu,  he is asked if secular stagnation is inevitable. His response is that it is not, but it is important for policy makers to stop vilifying debt. He points out that debt, in and of itself is not good or bad; it depends upon for what purpose it is used. Ha-Joon talks about debt for new or rehabilitation of infrastructure as a means to spur economic growth and debt to finance consumption when too much national income is concentrated in the hands of too few. Thanks to CEPR for the original link to this story.

Here is an excerpt…

TheCorner.eu Interviewer: One factor hampering growth is income inequality, which is at its highest since records began. Across the 34 OECD countries the bottom 40 percent of households possess 3 percent of all wealth. Another problem is the huge amounts of debt. How would you exit a debt crisis with even more debt?

H-Joon: What we need to reduce is not the absolute amount of debt but debt as a proportion of GDP. And the best way historically to achieve this has been to grow faster and also have mild inflation. We need to think differently because at the moment the orthodox thinking is to cut debt, but there is actually a more effective way which is to grow your income.

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