Three Paths for Indebted Democracies
One explanation for advanced countries’ sky-high public debt is that it reflects the flourishing of democracy and markets, with the former requiring government intervention to offset the volatility caused by the latter. If so, what can democratically elected governments do when their ability to spend has reached its limit?
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CHICAGO – Democratic governments are not incentivized to take decisions that have short-term costs but produce long-term gains, the typical pattern for any investment. Indeed, in order to make such investments, democracies require either brave leadership or an electorate that understands the costs of postponing hard choices.