Yet, things are not quite so simple. Interest rates are ultra-low in part because global investors are starved of “safe” assets that will still pay out in the event of a sharp downturn or economic catastrophe. But can governments in fact provide that insurance for free if there is a risk that interest rates will rise in the next major systemic crisis? A recent International Monetary Fund study of 55 countries over the last 200 years showed that although economic growth exceeded interest rates on government debt almost half the time, this was not a good predictor of whether the surveyed countries were safe from interest-rate spikes in a crisis.
Last but not least, how sure can investors be that they will come first in line in the next crisis, as they did in 2008? Will the United States government again put Wall Street before Main Street and honor debts to China ahead of obligations to pensioners?
Modern economies have many important uses for debt. But it is never a risk-free option for governments, which is why it should be taken on and managed wisely, even when rock-bottom borrowing costs prevail.
Kenneth Rogoff, a former chief economist of the IMF, is professor of economics and public policy at Harvard University.