Many, if not all, of the world's most pressing macroeconomic problems relate to the massive overhang of all forms of debt.
In Europe, a toxic combination of public, bank, and external debt on the continent's periphery threatens to unhinge the euro zone.
Across the Atlantic, a stand-off between the Democrats, the Tea Party, and old-school Republicans has produced extraordinary uncertainty about how the United States will close its 8 per cent-of-GDP government deficit over the long term.
Japan, meanwhile is running a 10 per cent-of-GDP budget deficit, even as growing cohorts of new pensioners turn from buying Japanese bonds to selling them.
Aside from wringing their hands, what should governments be doing?
One extreme is the simplistic Keynesian remedy that assumes that government deficits do not matter when the economy is in deep recession; indeed, the bigger the better. At the opposite extreme are the debt-ceiling absolutists who want governments to start balancing their budgets tomorrow (if not yesterday). Both views are dangerously facile.
The debt-ceiling absolutists grossly underestimate the immense adjustment costs of a self-imposed "sudden stop" in debt finance.
Such costs are precisely why impecunious countries such as Greece face massive social and economic displacement when financial markets lose confidence and capital flows suddenly dry up.
Of course, there is an appealing logic to saying that governments should have to balance their budgets just like the rest of us; unfortunately, it is not so simple.
Governments typically have myriad expenditure commitments related to basic services such as national defence, infrastructure, education and health care, as well as looking after older citizens.
No government can just walk away from these responsibilities overnight.
When Ronald Reagan took office as the US president in January 1981, he retroactively rescinded all civil-service job offers extended by the government during the two and a half months between his election and the inauguration. The signal that he intended to slow government spending was powerful, but the immediate effect on the budget was negligible.
Of course, a government can also close a budget gap by raising taxes, but any sudden shift can significantly magnify the distortions that taxes cause.
If the debt-ceiling absolutists are naive, so, too, are Keynesians. They see lingering post-financial-crisis unemployment as a compelling justification for much more aggressive fiscal expansion, even in countries already running huge deficits, such as the US and the United Kingdom.
People who disagree with them are said to favour "austerity" at a time when hyper-low interest rates mean that governments can borrow for almost nothing.
But who is being naive? It is quite right to argue that governments should aim only to balance their budgets over the business cycle, running surpluses during booms and deficits when economic activity is weak. But it is wrong to think that immense accumulation of debt is a free lunch.
In a series of academic papers written with Carmen Reinhart - including, most recently, joint work with Vincent Reinhart (Debt Overhangs: Past and Present) - we find that debt levels of 90 per cent of GDP are a long-term secular drag on economic growth that often lasts for two decades or more.
The cumulative costs can be stunning. The average high-debt episodes since 1800 last 23 years and are associated with a growth rate more than 1 percentage point below the rate typical for periods of lower debt levels. That is, after a quarter-century of high debt, income can be 25 per cent lower than it would have been at normal growth rates.
Of course, there is two-way feedback between debt and growth, but normal recessions last only a year and cannot explain a two-decade period of malaise.
The drag on growth is more likely to come from the eventual need for the government to raise taxes, as well as from lower investment spending. So, yes, government spending provides a short-term boost, but there is a trade-off with long-run secular decline.
It is sobering to note that almost half of high-debt episodes since 1800 are associated with low or normal real (inflation-adjusted) interest rates.
Japan's slow growth and low interest rates over the past two decades are emblematic. Moreover, carrying a huge debt burden creates the risk that global interest rates will rise, even without a Greek-style meltdown.
This is particularly the case today, when, after sustained huge "quantitative easing" by major central banks, many governments have exceptionally short maturity structures for their debt. Thus they run the risk that a spike in interest rates would feed back relatively quickly into higher borrowing costs.
With many of today's advanced economies near or approaching the 90 per cent-of-GDP level that loosely marks high-debt periods, expanding today's already large deficits is a risky proposition, not the cost-free strategy that simplistic Keynesian thinking advocates.
Above all, voters and politicians must beware seductively simple approaches to today's debt problems.
Kenneth Rogoff is a professor of economics and public policy at Harvard University, and a former chief economist at the IMF
* Project Syndicate
