In Defense of Public Debt

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.

Barry Eichengreen is George C. Pardee and Helen N. Pardee Professor of Economics and Political Science at the University of California, Berkeley. He is the author of several earlier books published by Oxford University Press, including Golden Fetters, Exorbitant Privilege, Hall of Mirrors, and The Populist Temptation.

Rui Esteves is Professor of International Economics and International History at the Geneva Graduate Institute. He specializes in monetary and financial history, straddling the fields of international finance, institutional economics, and public finance. His research provides perspective on the globalization of finance, financial crises, sovereign debt, financial market architecture, the choice of exchange rate regimes and emigrant remittances, as well as rent-seeking and corruption in public office.

Asmaa El-Ganainy is Deputy Division Chief at the International Monetary Fund's Institute for Capacity Development (European and Middle Eastern Division). Previously, she contributed to the IMF's surveillance, lending, research, and capacity development work at the European and Fiscal Affairs Departments. Her experience has covered wide range of countries, including advanced, emerging and low-income countries. She has also contributed to the IMF's work on several crisis cases, including Greece at the height of the 2010 European sovereign debt crisis. She has published in the fields of sovereign debt, public finance, capital flows, and labor markets.

Kris James Mitchener is Robert and Susan Finocchio Professor of Economics at Santa Clara University. His research focuses on financial crises, economic growth, exchange-rate regime choice, and monetary economics, and has appeared in the leading scientific journals, including the American Economic Review, the Journal of Political Economy, and Economic Journal. He served as editor-in-chief of Explorations in Economic History from 2015 to 2020.