Lhe debate on public debt often suffers from a lack of global vision. Public debt is, in essence, a macroeconomic object; comparing it with that of a person therefore makes little sense. A person does not live indefinitely, he does not raise taxes and, above all, his debt has a negligible impact on the rest of the economy. On the contrary, public debt has a considerable impact on other debts. It is therefore necessary to think about the link between public debt, private debt and the financial system as a whole.
Public debt and private debt are theoretically substitutable. The question is whether private agents are better able to assume a debt than the State, and what are the consequences in terms of financial stability, capital allocation and social inequalities. Let us first note that the capacity of the State to guide investment (public shareholding, regulation, coordination, guarantees, etc.) is not to be confused with public investment. The major transport infrastructures of the 19th centurye century were not financed by the debt of the State, but the latter guaranteed the debt of the railway companies and organized the development of the lines.
It was the same during the “thirty glorious years”, when the rate of investment was the highest in the history of France. The state could have the enormous investment needs financed by the debt of the large industrial and transport companies (often nationalized) as well as by semi-public financial organizations. This type of private debt can weigh on the State budget, as shown by the debt of the SNCF or the tax credits, but the consequences remain budgetary. The capacity of the State to act on the economy is therefore not proportional to its expenditure. It is wrong to invoke the size of the public debt as a brake on the role of the State in the development of the investments necessary for the low carbon transition.
An art of compromise
There are other areas where, on the contrary, the increase in private debt has particularly harmful consequences on financial stability or social inequalities. England and the United States show us these dangers. The rise in the mortgage debt of American households, encouraged by government policies, was one of the causes of the financial crisis of 2008. Today, these two countries, which have abandoned public higher education, face a serious student debt crisis (around 7% of UK GDP, potentially reaching 20% of GDP in 2040, according to the Office for Budget Responsibility). Student indebtedness has strong inegalitarian consequences as well as negative macroeconomic effects, because these debts weigh on consumption and investment. It can ultimately also be costly for the state: Joe Biden has decided to take charge of the cancellation of part of the student debt.
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