A government can pay down debt if it can't think of any other bright way to spend cash, the corporate equivalent of buying back stock. Canada's debt interest rate is 7.37% or so. Paying down Canadian debt will double government revenues in just under a decade. To separate the wheat from the chaff, I'm interested in expenditures that return at a minimum, twice the debt interest rate. So 14.74% or bust. I'm also penalizing governments racking up debt.
The net debt interest rate can be artifically lowered by selling more or buying back less T-Bills, bonds, etc., in a low interest rate environment. I'm reminded of a teacher that flunked out his worst student to increase the class GPA. Too much debt is poisonous to financial markets in this derivative era long-run, even worse assuming social progress. So any deficits I'm treating as if they raise the debt interest rate by a ratio equal to the deficit/debt and likewise for surpluses.
ex) the Dominion of Phil has a debt of $456 and owes Tony the shovel 7.37%/week. If Phil takes out a new loan of $45.60, regardless if at an interest rate of 1% or 20%, I'm going to increase my multiplier baseline of 7.37%/week by 10% to 8.107%/week.
This still doesn't stop downloading of debt to municipalities, Provinces, individuals....working on that. A social rate of return between 2-3x debt interest rate, I'm going to call a positive externality. Between 3-4x, a 1.5x externality, between 4-5x, a 2x externality...
This illustrates for a South American country that has been jacked by neoconservatism, with a debt interest rate at 15%, the best use of their money may be to pay down debt. This seems fascist. But looking at the big picture, the best use of cash for the world at large, if the SA country has otherwise intact infrastructures, may be to forgive the debt.
I'll tally externalities as my 2008 Canada Election "report cards". The debt multiplier baseline will be applied to twice an externality, 3x a 1.5x externality, 4x a 2x externaility. In the example, by racking up 10% more debt I now need a ROI of 16.214%/week to qualify for an externality, instead of 14.74%/wk. So if I pay $15 for a hard hat that gets me one 1/2 day of work for $17.25, this doesn't quite qualify as an externality under 16.214% ROI, but would under 14.74%.
It is tough to account accurate ROIs. No agreed annual discount formula. No agreed weight of value of Canadians vs non-Canadians. So where I can't find good research I'll arbitrarily assign certain expenditures an externality value (1x, 1.5x, 2x) and divide by (debt+deficit)/debt.
