The Social ‘Burden’ of High Interest Rates

Pasinetti proves that Domar's 1944 article is indeed correct. Domar's well-known article, created a stir by arguing that not only a high level of public debt, but also a continuous growth of public debt, and thus persistent deficit spending, could be sustainable, provided that a vigorous process of economic growth were maintained. His arguments came down to something that sounds almost obvious today: whereas in a stationary economy continuous growth of the public debt is impossible, as it inevitably, leads to an explosive situation, in a steadily growing economy, the public debt can indeed grow indefinitely, provided that-its rate of growth is kept within the constraints of the rate of growth of the national product. Their ratio can thereby remain'stable indefmitely.