London Financial Regulation seminar – Debts, deficits and inflation
Date: 8 February 2021
Professor Geoffrey Wood (Professor Emeritus City University, London, and Professor Emeritus, University of Buckingham), will present his paper on 'Debt, Deficits, and Inflation'. In this paper we consider whether the harm from high deficits and debt-to-income ratios is inevitable. There are five sections to the argument. First, we consider work occasioned by the first surge in public debt that occurred in the UK, and which addresses explicitly the concern that a national debt incurred by one generation places a burden on subsequent generations.
There is then a brief and purely analytical section in which we summarise the well-known but sometimes forgotten conditions for debt sustainability. We show, however, that there are some conceptual difficulties with these conditions. Then, looking these conceptual difficulties boldly in the face, we show that these sustainability conditions are not a purely theoretical possibility, but have been satisfied in the past. There are also, however, situations when the optimistic prognosis would have been wrong: we review some of these situations, to see if any common factor emerges.
We next examine a very important change, one often neglected in discussions of debt sustainability, which occurred in nineteenth-century Britain, and ask what guidance it gives for the present. We conclude with a brief overview, and by highlighting the importance of political and social circumstances to our tentative conclusions.