An Unbalanced Budget Amendment

The main argument against a balanced budget amendment is that it makes it more difficult to engage in Keynesian counter-cyclical fiscal policy. The main argument in favor is that without some legal or moral constraint, the ordinary rules of politics will push costs onto unrepresented and unorganized future taxpayers, as Jim Buchanan argued. In order to transcend these arguments I propose an unbalanced budget amendment.

The unbalanced budget amendment is a requirement that in good times the government must run a budget surplus. The virtues of such a rule are that it allows for counter-cylical fiscal policy during a recession. Indeed, it reduces the cost of counter-cyclical fiscal policy because it guarantees a reserve fund for just such emergencies. The unBBA is thus a type of automatic stabilizer of the kind I have argued for before (e.g. here).

A simple version of the unBBA requires surpluses but more generally the rule would be a surplus or a similarly sized reduction from the previous year’s deficit. The size of the required surplus/deficit reduction would be tied to a function of current and recent GDP growth rates.

Notice that while making counter-cyclical fiscal policy easier the unBBA would tend to create budget balance as surpluses in good times were spent in bad times. Thus over a period of time the unBBA has similar results to a BBA. By requiring surpluses (and thus taxes) to be high(er) in good times,however, rather in bad times the unBBA has a lower cost and a better chance of being passed than the BBA.

Overall, an unbalanced budget amendment seems much preferable to a balanced budget amendment.


You've got my vote.

Actually, my friends and I had arrived at the same idea, although we didn't consider calling it an unBBA.

"Congress shall not pass any budget that would result in a deficit, and any estimated income used in the budget must be not be larger than than the arithmetic mean of income received during the prior five fiscal years".

Specifics subject to negotiation (why five years?).

This results in a "balanced budget" amendment that is less subject to "gaming", AND provides the counter-cyclical utility of a (probably unpassable) unBBA.

Under an unBBA, who will be responsible for measuring and reporting on GDP? Who will be able to decide what factors go into calculating GDP? The government?

One advantage of a BBA relative to an unBBA may be that enforcement is easier. GDP numbers strike me as easier to artificially manipulate than the total expenditures and total revenues, the only two numbers required for a BBA.

It is worth noting that Alex's proposal was essentially the stated policy of the Labor government in the UK, with Gordon Brown first as Chancellor (finance minister) and then as Prime Minister. It didn't particularly work, in that the forecasts for long term growth (the remit of the treasury, an organ of the executive) were overly and repeatedly optimistic. There was more than a little suggestion that the projected growth figures had been influenced by Mr. Brown, a problem that would be partially solved had the UK had a bipartisan body like America's CBO to provide the forecasts (there is such a body here now).

On to America ...

Nobody, I imagine, would object to a requirement that the budget be balanced over the extremely long term (say, 100 years). Likewise, everybody, I imagine, would accept that it is both implausible and foolish for the budget to be balanced over the very short term (say, one month).

There is an argument, as Alex explains, for budget flexibility over the business cycle (subject to your personal beliefs regarding fiscal multipliers over the business cycle and the independence of the central bank).

That suggests a possible compromise: A requirement for the budget to balance *in expectation* over 10 years, with the CBO's scoring to provide that expectation.

The CBO's estimates may be bipartisan but they are anything but accurate.

It's easy to work around a requirement to balance the budget "in expectation" over 10 years. Put all the dessert in the first 5 years, all the broccoli in the latter 5 years. Three or four years into the cycle, re-budget. The result is all dessert and no broccoli.

If we require a significant budget surplus in good times, what happens if the political economists actually get their act together and we have a long stretch of good times?

Do we really want runaway deflation? Or do we want to have most of the money supplied by banks who collect rent on it?

How did you get from running a surplus to deflation?

Anon, by rhetorical excess.

In the old days, before paper money, I think it might have worked that way. Say it was gold coins. The more of them the government kept in Fort Knox, the less would be in circulation.

Of course, the government could lend out the money and collect interest on it....

End of year bonfire at the White House with green paper fuel? Thatd be deflationary.

One part of me says that the government paying down the debt pulls dollars out of the economy.

The other part of me says the the Fed can easily offset this.

So, say the government runs a surplus every year, and pulls dollars out of circulation, and the Fed offsets it. Something about this leaves me with a nameless doubt.

At some point, the federal government could have removed all of the money it every created. All of the money in the country would be money created by banks, that banks lent to somebody.

The entire money supply created by bank loans. I don't know why that leaves me with a nameless doubt, but it does.

How about we reverse that process? The Federal government collects enough money to pay all its expenses plus more, and it pays off its debt, and then it lends money for itself. Whenever it wants to increase the money supply, it lends more money -- at interest. So it collects taxes and interest both. Government assets always increase. Every dollar in circulation would represent a debt that is owed to the government.

Wouldn't that change things a whole lot?

J Thomas the government selling bonds also pulls money out of the economy.

The fed puts money into the economy by buying bonds and if no government bonds are available they can buy other assets like corporate bonds, stocks (like many a total market index), real-estate, Gold and other commodities etc.

Floccina, the government sells bonds and immediately spends the money. Then later it sells bonds to pay the interest on the bonds, and immediately gives that money to the bondholders. This does not remove money from the economy. If the government sold more bonds than it needed and then did not deposit the money in banks, that would remove money from the economy until the bonds matured. I think.

While I'm not sure your comment was fully baked, I would get nervous if the government began to accumulate significant net assets.

Fortunately (?) the odds of that seem low.

Out of curiosity, which are the nations running a budgetary surplus today? Are there any?

China, and a few others if I read this graph right

Read up on the current account:

For the most part, green countries are net exporters and red countries are net importers. Has nothing to do with budget deficit or surplus.


According to the The Economist, which publishes a pretty comprehensive list of budget, trade and current account balances, there aren't many: Hungary, Sweden, Norway, Chile, Saudi Arabia, South Korea, Singapore and Hong Kong. Here's the link to the source:

All the states do this (more or less successfully) through rainy day funds. In NC it is set at 5% of the state budget, which is much to low given the increasing volatility of state revenues..

First we would have to endure the political energy that would be spent arguing what legally constitues "good times."

I imagine by the time every member of Congress is through adding his/her usual personal touches, that definition would look something like the current byzantine tax code.

Two comments on Alex's proposal.

1. If Alex's idea is implemented as a constitutional rule, it will delegate power to some bureaucrats to decide about its application, including how to measure all relevant variables. Politicians are fraudulent clowns, but bureaucrats are worse than politicians --they are failed politicians and/or they owe loyalty to some politician (usually they lack the charisma that people need to entertain the masses with false promises; any doubt, look at Tim Geithner, a poster boy of a bureaucrat). This applies in particular to high-level bureaucrats regardless of their expertise --governors of central banks are a good example (for those that think that judges are good bureaucrats, I suggest to review studies of their decisions in countries where the judiciary has been working for centuries).

2. If Alex's idea were implemented discretionarily by someone like UK's PM Brown, no serious investor would trust his word and all investors would be betting about when the policy would be changed. Please whenever you suggest great policies that fraudulent clowns could implement discretionarily, take into account that reputation matters. If you still have doubts, please study history.

Note: I'm not saying that ALL bureaucrats and ALL politicians are as bad as I argue above. I'm saying that there is a high probability they will be as bad as history has taught us. Indeed, we can always blame the selection process and cheat ourselves thinking that next time the process will work well.

As always, I enjoy reading Dr Barandiaran's comments, and most especially when he mentions the fraudulent clowns we put in charge of our country. However, in this case I disagree with one important point --

I don't think of most of our bureaucrats -- even the highly placed ones -- as being in that category. Most of the government bureaucrats I have known have been career civil servants, neither failed politicians themselves nor beholden to politicians. I think Tim Geithner is not a poster boy for bureaucrats; quite the opposite, I think.

I think our career bureaucrats may annoy us with the organization-building activities they seem to enjoy, and the red tape they seem to tie us up in, but by and large I think they are good folks who tend to soldier on doggedly towards objectives we admire in spite of the obstacles set in front of them by politicians.

I thought you ad nauseam cried out that our legislature were clowns. Now you say the executive are clowns too. What about our judiciary? Or perhaps you think all working Americans are clowns? Maybe we'd be better off outsourcing our entire government to Dr. E. Barandarian and Company in Chile? (or is it Argentina?)

So far he's batting 1000

Like the song says, we're all bozos on this bus.

The GOP wouldn't agree because a budget surplus means you're collecting too much in taxes. Look at the Bush years. In fact, what are the odds that Bush overspent on purpose to create a deficit that plays to his party's strengths? No one has ever cut taxes during a war, right?

What economist and pundits like to forget is that Congress and the President ultimately answer to themselves, not necessarily to previously written rules. That's why the tax code looks like it does. So ultimately a balanced budget amendment would be bent or broken.

> No one has ever cut taxes during a war, right?

Kennedy cut taxes during the Vietnam war.

Kennedy assassination: November 22, 1963
Gulf of Tonkin Resolution: August 7, 1964

What's your point? Yes, the war got much worse under Johnson's watch.

We were clearly in a much riskier military situation when Kennedy proposed major tax cuts than when Bush did. The situation was much, much worse when those cuts were implemented.

Finch, the risks were not comparable. If we had lost Vietnam under Kennedy, the communists would have swept across South Vietnam and into Cambodia, Thailand, Burma, Bangladesh, and threatened India in one direction, and would have taken Malaya, Singapore, and Indonesia and threatened the Philippines and Australia in another.

But if we lost Afghanistan or Iraq, Al Qaeda would have a base they would use to lauch terror attacks against the continental USA. They would blow up nuclear power plants and telephone networks and freeway interchanges. They would destroy us.

So there is no possible comparison between the situations.

J Thomas, I don't understand your comment. On several levels.

In case it was my grammar that caused confusion, I want to make clear that I meant the [military] situation was much, much worse when [Kennedy's] cuts were implemented.

Finch, I was probably being too ironic.

In my opinion, in both cases we were fighting wars that could not be won on a meaningful level, and which we could lose without losing anything truly important, beyond the casualties.

And Kennedy's war did not cost nearly as much as the current wars, though Johnson's war cost much more than Johnson was willing to get Congress to pay for.


"No one ever cut taxes during a war" was an overreach, but
(a) Kennedy did NOT cut taxes, and
(b) the tax rate schedule from the 1954 Internal Revenue Code had some pretty high brackets, which you probably would have recommended cutting, too. For example, the rate for married over $200K or individual over $100K was 89%. In the less rarified air of more folks, married over $100K or individual over $50K was 75%.

Politicians nowadays proclaiming that the 39.6% rate would be an incentive-killer really ought to study their history.

Kennedy cut the tax rates but tax revenue didn't seem to fall until later in the 60's, a few years past his assassination:

Kennedy, like Reagan, cut rates while simplifying the tax code, ending up bringing in about the same amount of revenue (although Reagan did it in two steps after he reconsidered the first).

Ken Rhodes
I think that in this case things are really different now. Men work in face of almost any marginal tax and far fewer rich and middle class women worked in the 1960's. Today if you implemented a 75% marginal tax rate on income above say $150k you might see a lot of women drop out of taxed work and instead produce for in family consumption. That would effect your take.

Why choose fiscal over monetary means? How about a deficit monetization rule? The government doesn't issue any more debt to the public at all, and if it spends more than it taxes then we have QE by the same amount. The Federal Reserve loses some control over the money supply, but can maintain level-targeting of NGDP through the interest-rate mechanism.

"The size of the required surplus/deficit reduction would be tied to a function of current and recent GDP growth rates."

Goodhart's Law. You are inviting the definition and measurement of GDP to be manipulated for the purpose of skirting this requirement.

I've wondered about a "Shovel Ready Wiki." This would be a website where the projects for the next recession are developed and debated. Once developed, there would be incentive to make sure the surplus was there and that the ideas that had the most support were prioritized.

Exception for military and other emergencies?

Perhaps the ability to, in an emergency, suspend the amendment for the duration with a 2/3 vote?

The problem being, of course, the apparent endless state of military emergencies.

Or are you slyly suggesting that we draw a distinction between normal military adventures and extraordinary ones?

There is no substitute for good sense and proper incentives.

On the "carrot" side of incentives, just reduce Congress's salary to the Federal minimum wage and pay them a generous bonus for the average GDP growth rates over a ten year period following a given term in office. Make the bonus large enough that it would attract people who are smart and hard working enough to make an equally good living in the private sector.

On the "stick" side of proper incentives, allow any citizen to automatically have standing to enforce any law against any member of Congress in his individual capacity. Over-reaching intellectual property laws making us all criminals every day? I have a solution for that - 535 citizen prosecutions and a round of special elections.

On the “carrot” side of incentives, just reduce Congress’s salary to the Federal minimum wage and pay them a generous bonus for the average GDP growth rates over a ten year period following a given term in office.

I don't want congressmen who take bribes from lobbyists -- potentially a far more lucrative income than their salaries.

It would be better to require that congressmen be independently wealthy. And that's pretty bad.

Does anyone think people do the Congress "job" for their salaries?

@J Thomas:

I doubt there's any correlation between the salaries and bribes for congressmen. The bribes (for those who do take them) are likely of a magnitude that has no comparison with their salaries at all.

Rahul, exactly.

We can't pay congressmen enough to compete with bribes.

They'd have to be independently wealthy already.

Luckily, after their first couple of terms, they are.

If I grok this, you're saying: "seven fat cows, followed by seven skinny cows." hmmm.

In my mind, the main argument FOR a balanced budget amendment is that it makes it more difficult to engage in Keynesian counter-cyclical fiscal policy.

I think the main argument against the BBA is that it opens the door for arbitrary enforcement by the bureaucracy (as others have mentioned) but also by the courts. Witness the current suits about whether the enforcement provisions of PPACA constitute a "tax". How about the medicare and social security systems? Theoretically "off budget"...would they count? Current commitments to Fannie Mae and Freddie Mac...these represent the assumption of liabilities by the federal government, yet they do not appear on the federal ledger--would they count? All in all, too many unanswered questions here, mostly related to the dodgy, non-GAAP systems to government uses to account for its activities. Too much room for intervention without recourse to the electorate.

Good points. Also, the judiciary does not need to get more politicized.

If GDP is, over the long term, growing, then you need, over the long term, to run a deficit. Otherwise, you'd choke off expansion of the money supply commensurate with an expanding economy and you'd get deflation. You'd also want to make sure that the current account surplus/deficit is factored into what the secular deficit growth is set at.

I'd also like there to be a mechanism to allow adjustment of the deficit-to-GDP-growth ratio ("DTGG ratio"), should the optimal medium- to long-term DTGG ratio change.

If this happened, then the requirement that the government burn through any extra appropriations at the end of the fiscal year should be gotten rid of. It would also make seigniorage and debt monetization especially attractive options to get around the requirements, so you'd have to have limits on them or specify very carefully what makes up the degree of unbalance in the budget.

The fundamental problem with Keynesian counter-cyclical fiscal policy in the US is the higher level of spending becomes the default minimum level of government spending. As soon as any political figure tries to go back to the original spending level the proposed ‘cuts’ are hurting (fill in the blank) group and the cut is blocked. This eliminates the long term possibility of repeating the fiscal policy in the future as the policy becomes permanent debt spending at some point.

Or a permanent tax cut, as the case may be.

I'm skeptical of tying a constitutional amendment to statistics generated by federal employees or their contractors. The games they are playing with the CPI are bad enough.

I don't like this idea for the same reasons as many others: it seems tailor-made for gaming.

My counter-proposal goes something like this. At no time* can the federal government spend more than the average of the last $N years' nominal revenue. Any politician that votes for/signs a budget that goes over is ineligible for further office holding under the federal government.

This would require a constitutional amendment, but seems (at least to me) immune to gaming beyond massive inflation. The moving average allows for slight counter-cyclical deficits, but not beyond. The scoring is done post-hoc, so no out year games can be played; no need for definitions of GDP, recessions, etc. Everything the government spends would count; all revenue would also count.

Is there something I'm missing (other than the political impossibility of such a plan)?

*exception for times of declared war; all deficit spending during those times must be directed at fighting the war.

Yes, you're missing the fact that this policy would be deflationary and contractionary. Assuming the economy is growing in the medium term, the government would have to, for the average year, suck more real money out of the economy than it puts in. This is essentially running a permanent surplus, which means deflation in an expanding economy, which means no more expanding economy. It would be like instituting a gold standard and then nuking all the world's gold mines, *and* requiring the government to throw some gold into the Mariana Trench every year until you started getting deflation[1].

[1] Which wouldn't take long. The only thing that would stop deflation would be people resorting to other forms of money, thereby devaluing the money. This is a recipe for chaos and national impoverishment.

which means deflation in an expanding economy

Okay, really, it starts out as disinflation but quickly leads to disinflation past zero.

Yes, you’re missing the fact that this policy would be deflationary and contractionary.

As is obvious from the comments here, the most basic ideas of economics are under dispute. And yet the commenters on this blog are surely way above average in their economic understanding.

So we cannot expect the political process to reach good economic results, except by accident.

What could help?

Perhaps there could be some sort of website where people can look at simple economic models, and observe what they do? Get it clear about the ideas, and the assumptions the ideas are built on.

Maybe make it easy to build new economic models with new assumptions, and watch what happens with those.

Then we could at least have a better chance to understand where the other guy gets his assumptions. Then we'd be in a better position to discuss testing those assumptions.

Is there something like that already in existence?

I've thought before about how to formally define a budgeting constraint which would have the effect of balancing over the business cycle while inhibiting gamesmanship by politicians, and this is what I've come up with: Appropriations in a given year cannot exceed the average of the previous year's revenue and spending.

The net effect is that half of this year's revenue is spent next year, half of the remainder the year after that, etc.; looking at it from the other direction, half of this year's spending is funded by last year's revenue, half of the remainder by the year before that, etc.

By no means would it be a perfect match to the business cycle, but it would dampen fluctuations, as spending wouldn't be able to ramp up as quickly as revenue in a boom, nor would it need to fall as quickly as revenue in a bust.

One problem with any of these proposed amendments is government accounting, which is cash basis. Medicare probably paid for itself (on a cash basis) when it was enacted; and yet here we are years later, and it's going to bankrupt us eventually (huge accrual basis liability). I don't know how to get around this problem, because trying to estimate the present value of any entitlement or program is ultra sensitive to the assumptions used.


The entire political class is simply DREAMING if you think our kids and grandkids are going to pay this debt. It will be repudiated, in toto, when the unsustainable and broken financial system collapses (say, 9-12 months from now).

Those who "pay" will be everyone who has their life savings tied up in this utterly failed system. The winners will be those with savings outside the financial system.

The entire political class is simply DREAMING if you think our kids and grandkids are going to pay this debt.

I don't think our current political class has the luxury of planning for our kids and grandkids. They're hardpressed to come up with a facade that looks acceptable today.

If you can't create the illusion of prosperity today, how much attention should you spare toward creating the illusion of prosperity looking ahead 20 years or 40 years?

You're expecting the repeal of the 14th Amendment in the next year?

It is interesting to me that the party that insists their candidates be deeply religious completely ignores what they call the Good Book. The Unbalanced Budget idea follows directly from the Old Testament. The Israelites are told to save up grain and other stores during the 7 years of plenty to survive the 7 years of want. Yet those same Christians demand that the budget always be balanced. Tyler, all you have to do is point to the proper old Testament passages, and ask the Republicans to act as their God commands.

By the way I am not a Christian. Or any other religion. I find it prudent to better understand the books people use to justify their behavior.

Your "Good Book" story is about saving BEFORE the disaster.

"Balanced budget" means not running a deficit. They aren't even hoping to accomplish a surplus to eliminate the debt and save for future disasters.

Wouldn't this depress consumption?

It's a Good Idea. Mind you, it looks a lot like what I advocate:
"A Monetary and Fiscal Framework for Economic Stability”. (Friedman 1948)

A simple version of the unBBA requires surpluses but more generally the rule would be a surplus or a similarly sized reduction from the previous year’s deficit. The size of the required surplus/deficit reduction would be tied to a function of current and recent GDP growth rates.

I like the idea but since unemployment seems to be what people care about most how about you must run a 5% surplus when in years when unemployment is below 5%.

How about this, Gov can only borrow when the real (adjusted for the inflation rate) interest rate is below 2%?

Not so sure, right now, with our current levels consumer debt, inflation should arguably be closer to 6%.

In principle, I like this idea. I also think that there have been several good counterpoints here as well. I also think we should generally be run a slight deficits in real terms if only to align the money supply with the GDP and to ensure there are always government bonds for people to purchase (even if we ran slight deficits, if we did so while properly accounting the cost of repaying old loans, our debt would slowly get *less*). That said, there are ways around these problems. One way would be to link instead full time employment to the percentage of tax receipts Congress is allowed to spend (remember, even though our GDP is increasing, our need for stimulus remains just as high because our unemployment levels are just as high). The primary aim here would be to raise spending authority automatically when unemployment is high, and to lower it automatically when unemployment shrinks. This would leave open the opportunity to raise/lower taxes, but such opportunities would always be tied directly to spending (which I believe is the root of our current problem).

I would caution you that there would be a "military necessity" exclusion, and we would just have the military budget and sloppy spending within it grow.

How about we do better education on why we should not give tax cuts when there is a surplus. I usually hear the argument that its our money, yada ,yada ,yada.

It's a novel idea, Alex, but I think a risk is number-creep. Zero is an excellent Schelling point, and is intuitive to voters.
Once you any more complex than zero, voters may well tune out.

The other point is that it pre-empts countercyclical responses:

Take 2007. Everyone thought there was going to be a recession because housing was going soft. Bush pushed through a tax cut to stimulate to avoid a recession.

Couldn't do it under your amendment. You would first have to go into shock before being resusitatated.

Alex, something like this was recently introduced in Congress as H.J.Res.73. Definitions, enforcement mechanisms, and other details would be addressed by implementing legislation, which would bind executive branch officials through the rule of law. This is countercyclical but very difficult to game.

SECTION 1. Total outlays for a year shall not exceed the average annual revenue collected in the three prior years, adjusted in proportion to changes in population and inflation. Total outlays shall include all outlays of the United States except those for payment of debt, and revenue shall include all revenue of the United States except that derived from borrowing.
SECTION 2. Three-fourths of the whole number of each House of Congress may by roll call vote declare an emergency and provide by law for specific outlays in excess of the limit in section 1. The declaration shall specify reasons for the emergency designation and shall limit the period in which outlays may exceed the limit in section 1 to no longer than one year.
SECTION 3. All revenue in excess of outlays shall reduce the debt of the United States. Upon the retirement of such debt, revenue in excess of outlays shall be held by the Treasury to be used as specified in section 2.
SECTION 4. The Congress shall have power to enforce and implement this article by appropriate legislation.
SECTION 5. This article shall take effect in the first year beginning at least 90 days following ratification, except that outlays shall not surpass the sum of the limit described in section 1 and the following portion of the prior year’s outlays exceeding that limit (excepting emergency outlays as provided for in section 2): nine-tenths in the first year, eight-ninths in the second, seven-eighths in the third, six-sevenths in the fourth, five-sixths in the fifth, four-fifths in the sixth, three-fourths in the seventh, two-thirds in the eighth, one-half in the ninth, and the limit shall bind in the tenth year and thereafter.

"The main argument against a balanced budget amendment is that it makes it more difficult to engage in Keynesian counter-cyclical fiscal policy."

I strongly disagree. Individuals, families, communities, towns, provinces, and nations often have opportunities to pool resources and invest in their own internal structure in ways that smaller private market actors won't (since they have different incentives). This is often done through borrowing from other market figures who are not investing in themselves or have excess cash reserves for other reasons. When such investment is done in a way that returns benefits to the investor over the long haul, and where those benefits seem to outweigh the costs, the investment is productive for the investor. A strong case can be made that societies that invest in themselves heavily often come out ahead of competing nations in the race for per capita GDP growth, living standards, etc.

So, at a basic level, we're debating whether or not a nation will allow itself the ability to invest in itself when it sees a good opportunity come along. A balanced budget amendment limits that ability to a great degree, certainly limiting that ability far beyond the relative ability that an individual, family, community, or average province would have. I'm not saying its wise or foolish. Obviously handcuffing yourself in this way has its own benefits, such as preventing you from making stupid investments. I'm just making the point that your opening sentence flat out misrepresents the most important essence of any balanced budget amendment proposal.

One final Socratic point: If a nation borrows from a competing nation and uses those borrowed funds to invest in itself in a productive way, has the borrower increased its own equity at the expense of the lender, or has the borrower taken on a liability to the benefit of the lender? I'd say there is no black and white answer. Thus, viewing patterns of international debt and borrowing as a black and white zero sum game is a fool's errand. For instance, you can easily come up with a thought experiment where one nation borrows and borrows relentlessly, using those funds to educate its citizenry, build useful infrastructure, raise its population slowly out of poverty and into better standards of living, build up a powerful military defense, etc. At the same time, the lenders are foregoing their ability to invest in themselves, instead experiencing slower growth than they could have, slower education than they could have, slower military buildup than they could have, etc. After decades of this, the lender starts to get suspicious of the borrower and comes calling for payment on the debts, but the borrower has a stronger society, stronger infrastructure, stronger military, etc. Do they have to pay their debts? Even if they do pay them, was it worth it?

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