Rogoff and Reinhart seem to be debunked, at least somewhat, but fear not -- the result is still true
9. There are still ample theoretical and empirical reasons to worry about debt. To name just a few:
Government deficits are what gives the private sector money to invest. If the government taxed back all the money it ever printed, I would have no money for anything. a.
"Crowding out": the logic of Clintonomics. If the government borrows
too much, the private sector doesn't have money to invest. Pretty
certain that this doesn't apply in America or Europe right now, but it
certainly has and could in other times and places.
Debt crisis: these are ugly, and often accompanied by other ugly,
destructive things,like hyperinflation. Of course causality runs both
ways; countries in trouble are more likely to get into a debt crisis.
But the more debt you have on the books, the higher the risk that a
downturn tips you into crisis. Sudden fiscal contractions are much
worse for the economy and other living things than gradual winddowns.
Hyperinflation is definitely a problem, and the
reason to worry about running too high debt/deficits. Good thing we have no sign of it here, and Japan has had no sign of it for a generation and counting.
Debt dynamics driving fiscal contraction: Well short of an all-out
crisis, if your interest rates start rising faster than inflation, you
start having to either raise taxes or cut spending; usually both. That
slows your GDP, at least in the near term.
Interest rates are set by the Government, up and down the yield curve depending on how they choose to manage their QE. If you see rates go up, you don't actually need to do anything unless you want the rates to be different.
Income redistribution: worth noting that repaying a big debt load
usually involves cutting spending or raising taxes on middle class folks
who have to cut their own spending, and giving that money to capital
owners. Some of those owners are outside your country, so you don't
even get derivative benefits.
Repaying debt involves changing numbers in a spreadsheet. Paying down debt involves running surpluses, but you would only do this if there was a problem with inflation. How you would run surpluses through taxes and spending, and where that incidence falls, depends on implementation.