[eudox]

>The problem was that the Chavista regime bungled the state-owned oil company so badly that it didn't have enough money even when crude prices were high, and really doesn't now that they're low.

Naturally, the problem is but a mere implementation detail.

[charlesdm]

That sounds like most western economies of the world.. unable to function without running a deficit, and they'll be worried when interest rates go up and wonder where that massive budgetary hole came from.

[witty_username]

Well, it's sensible to take some debt (2% interest rate FTW); but the question is how much?

[charlesdm]

Yes, it's sensible to take on some debt to invest in actual projects, such as infrastructure. Those have a positive ROI.

But: low growth in western countries is here to stay, and it's not sensible to borrow billions every year without reducing structural expenses. You're borrowing from the future, with no money to pay it back. That's just pushing the bill to the next generation, e.g. look at what happened to Greece.

[nhaehnle]

Greece is a bad example because they're not monetarily sovereign.

The harsh fact is: As long as there are leaks in the circulation of money, you either have to plug the leaks or increase the in-flow. If you do neither of these things, the economy shrinks and people suffer.

Western countries have leaks in the form of people saving (in part it's fair to blame the rich, but the whole emphasis on private pension funds is also a huge contributor to the problem reaching all the way into the middle class) and companies accumulating money. You either have to plug the leak (by taxing the rich and/or companies to drain all those savings, and returning to public pension schemes that are pay-as-you-go out of taxes) or increase the in-flow (this is what budget deficits are doing[1]).

Reducing the in-flow is pretty counter-productive: it increases incomes of people without addressing the structural problems that cause the leaks (like pension systems, ridiculously wealthy companies and individuals, etc.).

Also, the whole "pushing the bill to the next generation" rhetoric is pretty non-sensical, because government debt is never an inter-temporal problem, but always an intra-temporal one: If government debts are high, so what? It just means that assets are high elsewhere. You can be worried that assets slushing around are a problem (I am), but myopically focusing on the debt side of the equation without looking at the asset side is pretty dangerous.

[1] This is also what central banks are trying to do by decreasing interest rates etc.; here, the in-flow would come from private debt. The problem is that it's not a very reliable tool.