In New Papers, Economists Argue Deficits Are Like Ponzi Schemes

The current boom in deficit spending by governments around the world probably owes at least something to Olivier Blanchard, who in 2019 wrote, “Put bluntly, public debt may have no fiscal cost.” Blanchard, a former chief economist of the International Monetary Fund, argued that if the economy’s growth rate is durably higher than the government’s borrowing rate, a lump of debt becomes more affordable over time because interest payments shrink as a share of the economy.

It seemed like an invitation to open the red ink spigots, even though Blanchard has since hedged and even expressed concern this year that the Biden administration’s deficit spending will overheat the U.S. economy.