In today’s Mises.org article I elaborate on the Keith Hennessey chart showing projected fiscal trends through 2060. I walk through a numerical example showing the connection between government deficits and debt, as a % of GDP. (It’s a bit counterintuitive–you can set any level of perpetual deficits that you want, and there is an associated debt-to-GDP ratio that would be stable at that constant deficit.)
Here’s an excerpt of the Austrian product differentiation:
Contrary to Keynesians, the problem with government budget deficits is not merely that they (typically) lead to higher interest rates and thus reduce private-sector investment and consumption spending. Because, in this context, the Keynesians only look at economic factors insofar as they work through “aggregate demand,” they understandably think that large deficits can’t possibly hurt anything when interest rates are practically zero.
However, Austrian economists have a much richer model of the capital structure of the economy. In this view, economic health isn’t simply a matter of propping up total spending high enough to keep everybody employed. On the contrary, resources need to be deployed in particular combinations in particular sectors of the economy, so that semifinished goods can be transformed step-by-step as they move through the hands of various workers at different businesses and finally onto retail shelves.