THE SALIENT QUESTION IS WHETHER THE GLOBAL ECONOMY CAN AFFORD DECLINING US DEBT:

In 1816, the net public debt of the UK reached 240 per cent of gross domestic product. This was the fiscal legacy of 125 years of war against France. What economic disaster followed this crushing burden of debt? The industrial revolution. [...]

As Mark Blyth of Brown University notes in a splendid new book, great economists of the 18th century, such as David Hume and Adam Smith warned against excessive public debt. Embroiled in frequent wars, the British state ignored them. Yet the warnings must have appeared all too credible. Between 1815 and 1855, for example, debt interest accounted for close to half of all UK public spending.

Nevertheless, the UK grew out of its debt. By the early 1860s, debt had already fallen below 90 per cent of GDP. According to the late Angus Maddison, the economic historian, the compound growth rate of the economy from 1820 to the early 1860s was 2 per cent a year. The rise in GDP per head was 1.2 per cent. By subsequent standards, this may not sound very much. Yet this occurred despite the colossal debt burden in a country with a very limited tax-raising capacity. Moreover, that debt was not accumulated for productive purposes. It was used to fund the most destructive of activities: war. Quite simply, there is no iron law that growth must collapse after debt exceeds 90 per cent of GDP.

Follow @brothersjudd