Nov 26, 2018 in Economics, Model
I have previously written about how to evaluate and think about public debt in stable, developed countries. There, the overall message was that the dangers of debt were often (but not always) overhyped and cynically used by certain politicians. In a throwaway remark, I suggested the case was rather different for developing countries. This post unpacks that remark. It looks at why things go so poorly when developing countries take on debt and lays out a set of policies that I think could help developing countries that have high debt loads.
The very first difference in debt between developed and developing countries lies in the available terms of credit; developing countries get much worse terms. This makes sense, as they’re often much more likely to default on their debt. Interest scales with risk and it just is riskier to lend money to Zimbabwe than to Canada.
But interest payments...
Mar 29, 2017 in Economics, Model
Imagine that you’re a young teenager who really loves red jellybeans. You love them so much that you unabashedly call them your favourite food. It’s only the red ones though – you find all other jellybeans disgusting. For the purposes of this extended metaphor, you will have a sister. Like you, she loves one colour of jellybeans, but unlike you she only loves the green ones.
Your parents are stingy. They long ago realized that they could save a lot of money by paying you for your chores in jellybeans, instead of with an allowance. To prop up this system, they’ve forbidden both you and your sister from buying jellybeans in any store. Both of you can only get jellybeans from your parents. You each get a few jellybeans of your preferred colour each time you...