Is Public Debt a Burden on
Future Generations or an Investment in Their Future?
Dr. Yusuf Mansur*
One of the most influential
theories in macroeconomics over the past five decades is the Ricardian
Equivalence theory, reformulated by economist Robert Barro in 1974 based on an
idea first introduced nearly a century and a half earlier by David Ricardo. The
theory is built on a deceptively simple yet far-reaching proposition: if a
government finances its spending through borrowing rather than taxation,
rational citizens will anticipate that today's debt will eventually be repaid
through higher future taxes. Consequently, they will increase their savings
today, offsetting the government's fiscal stimulus. In this framework, public
borrowing and taxation become economically equivalent.
This idea has profoundly
influenced modern fiscal thinking and has become one of the intellectual
foundations for advocates of fiscal discipline and limited government
borrowing. Yet an important question remains: Does this theory truly describe
the functioning of modern economies? Are all forms of public debt really the
same?
I believe the answer is no. The
elegance of the theory lies in its mathematical rigor, but it rests on a set of
assumptions that rarely hold in the real world. It assumes that households are
perfectly rational, make decisions across generations, care about the welfare
of their grandchildren as much as their own, have unrestricted access to credit
and savings markets, operate in perfect capital markets, trust governments to
manage debt efficiently, and can accurately anticipate future taxation. If all
these conditions held, Barro's conclusion would be persuasive. The real
economy, however, is far more complex than theoretical models.
More importantly, the principal
weakness of the theory is not its assumptions alone, but its failure to
distinguish between two fundamentally different types of public debt. Not all
debt is created equal. Borrowing to finance public-sector wages, consumer
subsidies, and recurrent operating expenditures is fundamentally different from
borrowing to build a seaport, a power plant, a railway, a university, a
telecommunications network, a green hydrogen project, or digital
infrastructure. In the first case, the current generation consumes resources
while leaving future generations to pay the bill. In the second, debt finances
productive assets that benefit both current and future generations.
The critical question, therefore,
is not how much debt has been accumulated, but rather what that debt has
financed. In accounting, financial health is not assessed by examining
liabilities alone; assets must also be considered. The same principle applies
to public finance. If a government borrows one billion dinars to finance a
project that raises GDP, creates jobs, and generates additional tax revenues
for decades, future generations inherit not only the debt but also the
productive asset that helps repay it.
By treating debt and taxation as
equivalent, Barro's framework overlooks one of the most important elements of a
nation's balance sheet: public assets. This criticism is hardly new.
Ironically, David Ricardo himself, the economist whose name is attached to the
theory, was not convinced that it accurately described actual human behavior.
He regarded it more as a theoretical possibility than an empirical reality.
Likewise, Adam Smith, the father
of modern economics, warned against excessive borrowing to finance wars and
unproductive expenditure. Yet he never opposed public investment that expanded
national wealth and strengthened productive capacity.
John Maynard Keynes offered an
entirely different perspective. During periods of recession, the central
problem is not excessive public debt but insufficient demand and investment. If
governments borrow to finance productive projects and employ idle labor,
economic output rises, tax revenues increase, and the burden of debt may
ultimately become smaller than it would have been had governments refrained
from investing.
Joseph Stiglitz, Nobel Laureate
in Economics, argues that discussions of public debt often begin with the wrong
question. Instead of asking, "How much have we borrowed?",
policymakers should ask, "What have we invested in?" Spending on
education, scientific research, infrastructure, clean energy, and healthcare
should not be viewed merely as fiscal costs but as long-term investments that
raise productivity and improve future living standards.
Mariana Mazzucato goes even
further, arguing that governments are not merely market correctors but market
creators. Public investment has played a decisive role in many of the world's
most transformative innovations—from the internet and GPS to advanced medical
technologies. From this perspective, debt that finances innovation is not a
burden but an investment in creating entirely new industries and markets.
Recent developments in
macroeconomic thinking have reinforced this view. Olivier Blanchard has
demonstrated that debt sustainability depends not only on the size of public
debt but also on the relationship between the cost of borrowing and the rate of
economic growth. When an economy grows faster than the interest rate paid on
government debt, the debt burden becomes far more manageable, particularly when
borrowing finances productive investments.
This reasoning has revived
interest in an important fiscal principle known as the Golden Rule of Public
Finance. Under this principle, governments may borrow to finance capital
investment but should avoid borrowing to finance current expenditure.
The rule embodies an important
concept of intergenerational fairness. Capital projects generate benefits for
decades, making it reasonable for future generations that enjoy those benefits
to share part of the financing burden. By contrast, borrowing to finance wages
and day-to-day operating expenses merely shifts the cost of today's consumption
onto future generations that had no voice in the original decision.
International experience strongly
supports this distinction. Following the Second World War, the United States,
as well as South Korea, Singapore, and China, did not view public borrowing as
either a virtue or a vice. Instead, they used debt strategically to finance
infrastructure, education, energy systems, industrial development, and
scientific research. These investments generated productivity gains and
economic growth that ultimately exceeded the cost of borrowing itself.
Successful economies therefore do
not simply distinguish between countries with high debt and those with low
debt. They distinguish between debt that creates productive assets and debt
that merely finances consumption. Accordingly, the appropriate measure of
fiscal policy should not be the size of public debt alone but rather the
quality of that debt, the economic and social returns it generates, and its
contribution to productivity and national wealth.
Ultimately, future generations
will inherit more than public liabilities. They will inherit the roads, ports,
electricity grids, universities, hospitals, factories, digital infrastructure,
and clean energy projects that today's borrowing has made possible. If these
assets generate income, employment, and sustained economic growth, public debt
should be viewed not as a burden on the future but as an investment in it.
Conversely, when borrowing merely finances current consumption, it becomes
exactly what Barro feared—a deferred tax imposed on generations that played no
role in incurring it.
The question that should guide
fiscal policy, therefore, is not "How much have we borrowed?" but
"What have we built with that borrowing?" That is the question that ultimately determines whether
public debt is a burden on future generations or a gift to them.
* The writer is a Former Jordanian Minister of State for Economic Affairs.
Published in Jordan Times/ 07 July, 2026
https://jordantimes.com/opinion/yusuf-mansur/is-public-debt-a-burden-on-future-generations-or-an-investment-in-their-future
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