DUMA GQUBULE: Why the state should spend itself out of trouble
An important lessons for SA from a compelling report on the inverse relationship between public spending and national debt
At the end of World War 2 the UK had a debt-to-GDP ratio of 250%. Yet according to a seminal report on macroeconomic policies in the UK and the US over the past century by Douglas Coe and Ann Pettifor, the UK national debt burden started lifting after 1947 under a Labour government programme that included the introduction of a costly welfare state and national health service. This holds important lessons for SA. There was a dramatic fall in the debt-to-GDP ratio in the UK over the subsequent two decades. “Over the era commonly associated with pro-public sector and anti-private sector policies, when contemporary belief would lead us to conclude that the public debt must have steadily risen, it actually fell just over 200 percentage points to 50%, roughly seven percentage points a year.” The report, by Prime Economics, provides compelling evidence of an inverse relationship between public spending and national debt. The debt burden on both sides of the Atlantic declined when public sp...
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