Many Liberal Western democracies no longer even pretend to try to balance their deficits or pay down their debts. The prevailing notion is to reduce the ratio of debt to GDP. i.e. Expand the economy and the debt shrinks in relative terms.
This relies on endless growth. Reduced fertility rates and shrinking populations are where this strategy goes horribly wrong. If you borrow to stimulate growth and the population/economy instead shrink, debt spirals out of control.
This is why politicians of all stripes in countries like Canada are so happy to welcome (skilled and/or wealthy) immigrants. If you can't expand your population with native births, you do it with immigration so that endless growth can continue.
You might think that countries able to attract immigration are going to be able to continue expanding their economies and avoid the harsh realities of paying down their debts. However, the global economy is so tightly and complexly interwoven that a blow to one influential country's economy will be felt elsewhere. e.g. China is one country that, for obvious reasons, does not attract immigration. When their population starts to shrink, what will be the impact on the economies of countries like Canada?
Our world order is predicated on endless growth, but we're going to have to figure out how to adapt to long-term global recession.
Imagine two countries. One country puts itself into massive debt building old folks homes and training people to work in them. The other closes their old folks homes to pay down the debt.
Then a few years later, there is a massive need for old folks homes. Which country can afford to pay for them and which can't? The country with massive debt can keep printing money to pay for the old folks homes, but since supply and demand match, they don't have inflation and things are fine. The country with the balanced budget but no old folks homes sees massive inflation because you can't magic old folks homes out of thin air -- it takes time to build them and to train workers. In the mean time because supply and demand are imbalanced the price goes up.
To paraphrase a famous Keynes quote about WW2 -- if you can do something and are willing to prioritize it over everything else you can do, you can afford it no matter how expensive it is. If you don't have the capacity to do something then you can't afford it no matter how much money you have.
> The prevailing notion is to reduce the ratio of debt to GDP
This is all that is necessary to create a deflationary environment. It means that there are fewer dollars floating around per point of GDP.
Remember that a large portion of government debt in Western countries, particularly Japan, is owed to itself. That's right, the vast majority of the "massive debt" that Japan has, is held by the Bank of Japan. And a lot of their debt is at a rate of 0%. So most of it is essentially "fake debt", they could wipe it out at the stroke of a pen. The only consequence would be on inflation, and Japan is perhaps the only country in the world that doesn't have an inflation problem.
You don't necessarily reach death spiral when you fail to stimulate economic/population growth, you still can make it up in productivity gains and if productivity outpaces population size loss, the net result is positive for the economy.
Also, in the event of China losing its preeminent rank in the global economy, another country/union will eventually fill its former role. Yeah, the transition might not be fast and smooth but the degree of built-in resilience in the global system will manage to get us through these unfavorable events.
This relies on endless growth. Reduced fertility rates and shrinking populations are where this strategy goes horribly wrong. If you borrow to stimulate growth and the population/economy instead shrink, debt spirals out of control.
This is why politicians of all stripes in countries like Canada are so happy to welcome (skilled and/or wealthy) immigrants. If you can't expand your population with native births, you do it with immigration so that endless growth can continue.
You might think that countries able to attract immigration are going to be able to continue expanding their economies and avoid the harsh realities of paying down their debts. However, the global economy is so tightly and complexly interwoven that a blow to one influential country's economy will be felt elsewhere. e.g. China is one country that, for obvious reasons, does not attract immigration. When their population starts to shrink, what will be the impact on the economies of countries like Canada?
Our world order is predicated on endless growth, but we're going to have to figure out how to adapt to long-term global recession.