A spendthrift government followed by a “social” government: Guaranteed public debt crisis

Many governments are now “spendthrift”: they are taking advantage of very low interest rates to conduct expansionary fiscal policies and increase the public debt ratio. A spendthrift government could be followed by a “social” government that gave bargaining power back to wage earners, by changing the rules of the labour market in their favour, and corrected the skewing of income distribution to the detriment of wage earners. The result would be resurgent inflation and an increase in real interest rates if the central bank combated the inflation, leading to a public debt crisis, because the previous “spendthrift” government left the legacy of a very high public debt ratio. The sequence of a “spendthrift” government followed by a “social” one is not unlikely in many countries .