HOW DEBT SHAPES AN ECONOMY | Lee Chandler

How does debt promote economic development?

In terms of economic development, debt can be viewed as vital in promoting development. A correlation between increasing debt and economic development has been established. This is because, the more money that the government has, the more it can relocate into different sectors within the country and promote growth. When a country borrows for instants to build more schools, this creates multiple positive effects. Firstly, jobs will be created in building the roads. The goals of economic development are aimed at increasing productivity and revenue. Increased productivity allows new industries to be established and hence creates more jobs, so on and so forth. In the US, its current debt is 19 trillion although this is a good thing. Its debt allows the government to can hire people to build roads and bridges, to clean up public spaces and parks; to provide education and health care. All that is real economic production made possible by the government’s power to borrow and create money.

How does debt inhibit development?

In terms of economic development, debt, in the long run, can be viewed as bad for the economy. Growing federal debt is inhibiting development because it reduces banks’ confidence. This in turn creates higher interest rates and ultimately reducing people’s spending power. This reduces productivity and revenue within the country which is one of the main aims of economic development. The government still needs to pay back the loan that they have taken and thought could mean negative economic growth. In Greece, the economy is failing due to high debts. The country in 2009 was facing a recession and due to the already high debt within the economy, further worsened Greece’s situation. The debt that it helps led it to is an eventual downfall. An increase in debt can also force the country in introducing austerity policies. This is when the country reduces spending in order to pay the debt. This can cause lower funds for sectors such as schools, hospitals, benefits, and an increase in inequality. 

conceptual finance image of rear view businessman sitting on chair with laptop computer looking at money covered view with storm of money tornado

How does debt promote social-political development?

As stated above, an increase in debt has a positive correlation with the development of the country. From the viewpoint of social-political developments, an increase in debt can overall increase the quality of education within the country. This is because the more money the country has, the more it can relocate into social and political factors such as education, the legal system, and healthcare.  The improvement in education and leads to gender equality and a less corrupt government. The educated youth can have a different view point on issues and also realize the problems that gender inequality and corruption cause in a country. This will ultimately increase development within the country. Kenya’s overall public debt increased by Sh608 billion in 12 months. This is due to the increase in infrastructure within the country. There is a positive correlation between the debt rises in Kenyan in comparison to the education levels. This shows that the increase in debt can promote development from a social-political perspective.

How does debt inhibit development?

In a sustainable development view, debt can be argued to be an inhibiter of development. This is because sustainable development states that’s the development that’s occurring must meet the needs of the present without compromising the needs of the future. Borrowing may stimulate growth in the short run but although in the long run, this would not be ideal for the future inhabitants. They will need to compensate for the debt taken by their predecessors and ultimately reducing their development because they are not meeting their needs at that moment, rather they are fixing the issues left behind. The government of Kenya has been loaded up to 300 million Kenyan shillings to build the railway station. This can be argued that this debt is not sustainable because it’s not used to tackle current issues within Kenya such as shortage of water. The load from China does not compensate for the issues that the country is facing at this very moment. Also, the loan will be paid by the citizens of the country and reducing development in the future. 

References

Spross, J., 2016. The Week. [Online]
Available at: https://theweek.com/articles/618419/why-americas-gigantic-national-debt-good-thing
[Accessed October 2020].

 

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