For me, a high point of our economics coverage is the annual special report on the world economy. Each year we pick a theme—in 2024 it was America’s powerhouse economy, in 2023 the dangerous economics of defending the homeland. This week we publish “Governments going broke”, an in-depth look at the looming threat posed by rich countries’ mounting debts. It is written by our economics editor, Henry Curr. He warns that the world could end up with a nasty bout of inflation.

Our cover leader picks up the theme. Rich-world public debt is already worth 110% of GDP. Barring the covid-19 pandemic, it has not been this high since the Napoleonic wars. 

Governments will struggle to find a way out of the trap they have made for themselves. They cannot avoid rising interest bills or spending more on defence. Ageing populations exert an irresistible electoral pressure to hand over more cash. Raising taxes is just as hard. Many European governments already tax to the max; in America higher taxes are a ticket to electoral defeat. 

You might hope that productivity growth, powered by artificial intelligence, would come to the rescue. Sadly, pensions and health-care spending tend to rise with incomes: in big welfare states they will surge along with productivity. So too will interest rates, offsetting the fiscal windfall that comes from faster growth.

It is therefore worth reflecting while there is still time on the grave harm inflation does to economies and societies. Uncontrolled inflation shifts wealth from creditors to debtors; from those with cash and bonds to those who own real assets such as houses; and from those who agree on contracts and wages in cash terms to those wily enough to anticipate higher prices. Inflation punishes the middle class and frays the social contract. Be warned. 

I spoke with Henry about whether a reckoning awaits America’s economy in this week’s episode of The Insider, The Economist’s new show. Also joining me were John Prideaux, our US editor, and our editor-in-chief, Zanny Minton Beddoes. If you are a subscriber you can watch the show now via our Insider hub.