In his column, Why state can spend itself out of trouble (November 20) Duma Gqubule concludes: “SA is not broke. It has a GDP growth problem, not a debt problem.” He quotes a net loan debt of 48% of GDP but does not mention the direction this ratio is taking over the medium-term budget period — towards 60%, about 10 percentage points above the benchmark. Together with the direction comes the question of what this borrowed money is spent on. The multiplier effect of spending on infrastructure is mentioned with reference to the construction industry. Since the mercantilists of the 15th century, the question has been asked when the state should fund expenditures from taxes and when from loans. For about 400 years economists found only one justification for loan financing — an emergency — without exception wars were the standard example. In 1855 the German economist Carl Dietzel was the first person to suggest another justification: to establish something of lasting utility. In today’s ...
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