In Defense of Public Debt

by Barry Eichengreen, Asmaa El-Ganainy, Rui Esteves

A dive into the origins, management, and uses and misuses of sovereign debt through the ages.

Public debts have exploded to levels unprecedented in modern history as governments responded to the Covid-19 pandemic and ensuing economic crisis. Their dramatic rise has prompted apocalyptic warnings about the dangers of heavy debts―about the drag they will place on economic growth and the burden they represent for future generations. In Defense of Public Debt offers a sharp rejoinder to this view, marshaling the entire history of state-issued public debt to demonstrate its usefulness.

Authors Barry Eichengreen, Asmaa El-Ganainy, Rui Esteves, and Kris James Mitchener argue that the ability of governments to issue debt has played a critical role in addressing emergencies―from wars and pandemics to economic and financial crises, as well as in funding essential public goods and services such as transportation, education, and healthcare. In these ways, the capacity to issue debt has been integral to state building and state survival. Transactions in public debt securities have also contributed to the development of private financial markets and, through this channel, to modern economic growth.

None of this is to deny that debt problems, debt crises, and debt defaults occur. But these dramatic events, which attract much attention, are not the entire story. In Defense of Public Debt redresses the balance. The authors develop their arguments historically, recounting two millennia of public debt experience. They deploy a comprehensive database to identify the factors behind rising public debts and the circumstances under which high debts are successfully stabilized and brought down. Finally, they bring the story up to date, describing the role of public debt in managing the Covid-19 pandemic and recession, suggesting a way forward once governments―now more heavily indebted than before―finally emerge from the crisis.

Genres: Economics, Politics, Money, History, Nonfiction

320 pages, Hardcover

First published January 1, 2021

About the author

Barry Eichengreen* is the George C. Pardee and Helen N. Pardee Professor of Economics and Professor of Political Science at the University of California, Berkeley, where he has taught since 1987. He is a Research Associate of the National Bureau of Economic Research (Cambridge, Massachusetts) and Research Fellow of the Centre for Economic Policy Research (London, England). In 1997-98 he was Senior Policy Advisor at the International Monetary Fund. He is a fellow of the American Academy of Arts and Sciences (class of 1997).

Professor Eichengreen is the convener of the Bellagio Group of academics and economic officials and chair of the Academic Advisory Committee of the Peterson Institute of International Economics. He has held Guggenheim and Fulbright Fellowships and has been a fellow of the Center for Advanced Study in the Behavioral Sciences (Palo Alto) and the Institute for Advanced Study (Berlin). He is a regular monthly columnist for Project Syndicate.

His most recent books are Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System (January 2011)(shortlisted for the Financial Times and Goldman Sachs Business Book of the Year Award in 2011), Emerging Giants: China and India in the World Economy, co-edited with Poonam Gupta and Ranjiv Kumar (2010), Labor in the Era of Globalization, co-edited with Clair Brown and Michael Reich (2009), Institutions for Regionalism: Enhancing Asia's Economic Cooperation and Integration, coedited with Jong-Wha Lee (2009), and Fostering Monetary & Financial Cooperation in East Asia, co-edited with Duck-Koo Chung (2009). Other books include Globalizing Capital: A History of the International Monetary System, Second Edition (2008), The European Economy since 1945: Coordinated Capitalism and Beyond (updated paperback edition, 2008), Bond Markets in Latin America: On the Verge of a Big Bang?, co-edited with Eduardo Borensztein, Kevin Cowan, and Ugo Panizza (2008), and China, Asia, and the New World Economy, co-edited with Charles Wyplosz and Yung Chul Park (2008).

Professor Eichengreen was awarded the Economic History Association's Jonathan R.T. Hughes Prize for Excellence in Teaching in 2002 and the University of California at Berkeley Social Science Division's Distinguished Teaching Award in 2004. He is the recipient of a doctor honoris causa from the American University in Paris, and the 2010 recipient of the Schumpeter Prize from the International Schumpeter Society. He was named one of Foreign Policy Magazine 's 100 Leading Global Thinkers in 2011. He is Immediate Past President of the Economic History Association (2010-11 academic year).

* This is the biosketch available at his faculty page.

Reviews

[Brice Karickhoff · Rating 4 out of 5]

I don’t know what makes my head spin more: the contents of this book or the fact that 2 years ago I would’ve been able to read it like casual fiction. Where does the time go?

This book, which would more appropriately be titled “a long history of public debt followed by a brief defense of modern public debt” was quite informative and engaging to read. It certainly left few stones unturned in its discussion of how government debt became a thing, and it left me more convinced than ever that government borrowing has its rightful place in a healthy country’s fiscal policy.

The only bummer is that the argument made by this book is really too over my head for me to contend with it. I knew this going in, as the two smartest econ professors I had in college landed on opposite sides of this issue (leaving me convinced Id never be the one to decode a solution), but still, even after this read, I don’t know what to think of policies like enormous stimulus packages. The book reminded me of the benefits, but on the same day I finished it, the fed announced they’d have to hike up interest rates earlier than expected (in an already tight labor market) in order to curb inflation that is currently higher than the yield on treasury bonds… which is like pretty bad?

Anyway, I’d suggest this book, but not to the faint of heart.

[Christoffer Garland · Rating 2 out of 5]

I must admit that I was disappointed by this book. The task of pushing back against debt hawks is admirable, but unless you are one of said hawks or simply have no prior experience or knowledge of the subject matter I doubt you will learn much from this book. The book isn’t bad per se (I doubt the authors are lying or fabricating anything), but it is simply pales in comparison with other works that cover the same topics in a more interesting, engaging and in the end more convincing way. The book starts in medieval/early modern Europe with the beginnings of sovereign dept. The ways in which state needs and development intertwined with the development of capitalism in early modern Europe is familiar to most who have even a passing interest in European history, capitalism or political economy more broadly (think something like Charles Tilly’s Coercion, capital and European states). From there the authors take the reader on the history of public dept mainly in the “west” (Europe, America and later Japan). Despite the title the authors focus mainly on the problems of public dept like the sovereign defaults of Latin American countries in the nineteenth century or the various emerging market crisis in the in the 1990s. Token references are made to the fact that public dept CAN help growth (which can, through positive interest rate/growth rate differentials, reduce dept burdens over time) by investing in infrastructure, education and healthcare. What I would like to have seen in this book would be something like Peter Lindert’s Making social spending work where the authors show how these investments are good and a productive use of public debt. The narrative of public debt through history is compromised by the glaring absence of China from the story. It appears briefly in the section discussing debt and imperialism in the early twentieth century until it reappears in the section covering governmental responses to the 2008 financial crisis fully a century later. The unprecedented transformation China underwent in that century is completely left out. What the Soviet Union’s relationship with dept was is also absent. Another weakness of the book is that the authors are seemingly stuck in the vision of the world adopted by many in the 90s and 2000s. They implicitly perpetuate the views of the so-called “Washington consensus”, namely that capitalist democracy is the only viable model for development. This belief may account for the striking absence of discussion on the development of South Korea (during its right wing dictatorship) Singapore and China. The ways in which power and influence also affects financial markets is mostly left out. The financial world is seen as flat. “Imprudent behaviour” (like a too high dept-to-GDP ratio or to much deficit spending) is punished by the market whether you are an emerging market economy or not. This is belied by past and present actions of countries like the US (the top of the world’s financial pyramid) which engage in heavy deficit spending (6.5% of GDP in 2024) without much reaction from the markets. The stabilising functions of public sector dept for financial markets are also not really spelled out in the book. US treasuries are the safe asset of choice for the world’s financial markets and serve as prime collateral in a large part of financial transactions (like repo markets). Dept also serves as the dumping ground for collective savings. People want to save and therefore invest in a safe asset that pays interest rather then investing in the stock market which after all is way more of a gamble. In this way public dept facilitates long term planning. What happens if a modern economy’s dept-to-GDP level is too low (like Germany) is also not talked about by the authors. The potential need for public finance in order to facilitate the dramatic transition to green energy required by the threat of climate change is also absent. I could go on and on about these flaws, but the long and short of it is that I was disappointed.

[Rachel Childers · Rating 2 out of 5]

More of a history than a defense. Points for being reasonably comprehensive, and making an effort to work through the accounting of past sovereign debt consolidation episodes, but if I wanted primarily narrative I would start with Eichengreen's other books over this one.

[Arttu · Rating 4 out of 5]

This book offers a history of public debt: what it has been used for, how it has evolved over time, and how it has shaped society. It moves chronologically through the major eras of sovereign debt history, and where statistics allow, provides a systematic comparison of the factors that changed governments' debt burdens from one period to the next.

Beyond the interesting history, worth reading for its own sake, the book made me to reflect on the borrowing of modern governments. There is no silver bullet for reducing debt. Given modern challenges such as demographic shifts, expansive social-benefit programs, and uncertain growth prospects, there is no simple way out. Still, the authors show that better debt management is possible, and that we can learn from earlier episodes to avoid repeating past mistakes.

The book does not attempt a deep dive into every case; instead, it smoothly surveys numerous episodes that could each sustain their own detailed study (as in Why Not Default). This breadth helps establish the context for the authors' main argument. Their defense of public debt is not overstated, but they make clear that it has had, and importantly, can still have, significant positive effects. They emphasize that issuing debt at a reasonable price is not automatic; it depends on sound budgeting and prudent debt management.

[Kevin_Raccoon · Rating 5 out of 5]

This is not an easy book to read. The author weaves through history, data, and theoretical/empirical literature, making the content quite dense. It would have been better if the book had expanded more on the context background. Public debt is a double-edged sword. The ability to borrow is sometimes a core advantage, and other times a source of inefficiency and crisis. Rather than demonizing or moralizing government debt, it is more important to adopt prudent fiscal and financial policies to address the challenges of public debt burdens. The book’s analysis of various debt crises summarizes some general rules of thumb. There is no single optimal target level for debt, nor a single solution. Any single macro theory would not be helpful, and this will continue to be a field of intense debate and exploration in both macro policy and academia (macro theory guys don't help the world).

[Dmitri Rabin · Rating 5 out of 5]

An excellent summary of history of public debt issuance, it’s uses and risks. The historical analysis is excellent. The books nicely addresses ways to bring down public debt (positive growth-interest rate differential or positive primary account surplus) and disaggregates prior successful periods of debt consolidation into these elements. One criticism I’d have is lack of focus on inflation. The book largely treats inflation as an exogenous phenomena, rather than focusing on theories of how various levels of debt and fiscal and monetary decisions lead to inflation. It’s hard to have a complete picture of public debt without considering inflation expectations, term premia and other relevant phenomena. Maybe that’s the next book.

[Jack Calland · Rating 4 out of 5]

3.5 stars. More of a history of public debt than a "defense". Overall, a rewarding insight into the development of sovereign debt and its role in state building (and survival). Many useful lessons. Main one, for me, is that debt is essential to development, and how one pays off debt is just as important. A balanced approach should be taken based on a country's particular conditions – too-harsh austerity hurts growth and poorest, over-inflation hurts everyone plus creditors, etc. Would have been nice to hear more about options in advanced vs. emerging economies. Probably out of scope, but a discussion of the relative importance of tax vs. debt in development would have been interesting.

[Ietrio · Rating 1 out of 5]

Apparently people are such egoists and aren't willing to pay more than 90% tax on their income to support leeches like Barry and his gang. So debt is the only reasonable way to keep paying for Barry, his family, and his hordes of minions. And wait, it does not end up here. When Barry and the gang will be too bored to go up to the office, the Public Debt will sponsor their pension: a wage for doing nothing, and their health care.

Public Debt. So your grand children could chip in to pay for Barry's new home.

[Paul · Rating 4 out of 5]

A very worthwhile book. It's quite an achievement to casually write what amounts to proof that most of the world is not run by people but money and make it so blisteringly boring that you hardly notice. I'm being extremely reductionist for effect but whether you agree with authors interpretations and evaluation of economic solutions you can't deny the seemingly overwhelming effect they have had on limiting political choices of countries. Reminds of Peter Zeihan and his reductionist approach to how demography is at the root of all events.

[Ted Ehlert · Rating 4 out of 5]

This is a solid book, one that as an economist I thoroughly enjoyed. It may be too "heady" for everyday reading, but I find it to be an especially enlightening read in the context of debating public policy. Indeed, any independent American voter ought to read this before deciding which political platform to support: it will certainly muddy the waters!

I also believe anyone serious about investing, retirement planning, and wealth-building must study monetary and fiscal policy, and truly understand the potential consequences of uncontrolled public debt and the cost of it.

[Joshua Black · Rating 5 out of 5]

Wonderful book. Not as much a defense of debt, as it is a history of government debt dating back to 432 BCE.

The authors provide a detailed explanation how government debt was used and changed over time; along with explanations for how it was repaid.

Lastly, the authors conclude by providing steps governments must take in order to resolve the necessary debt issuance from the COVID-19 crisis.

[Sangam Agarwal · Rating 2 out of 5]

nice book on debt history

[Rommel Harlequin Monet · Rating 1 out of 5]

"In Defenth of Public Debt" ith a pitiful apowogia a cupple of decade-th too late.