Home > Uncategorized > Is public debt — really — a burden on future generations?

Is public debt — really — a burden on future generations?

from Lars Syll

The real issue … is not whether it is possible to shift a burden (either in the present or in the future) from some people to other people, but whether it is possible by internal borrowing to shift a real burden from the present generation, in the sense of the present economy as a whole, onto a future generation, in the sense of the future economy as a whole … The latter is impossible because a project that uses up resources needs the resources at the time that it uses them up, and not before or after.

204545_600This basic proposition is true of all projects that use up resources … The proposition holds as long as the project​ is financed internally, so that there are no outsiders to take over the current burden by providing the resources and to hand back the burden in the future by asking for the return of the resources.
It is necessary for economists to keep repeating​ this basic proposition because one of their main duties is to keep warning people against the fallacy of composition. To anyone who sees only a part of the economy it does seem possible to borrow from the future because he tends to assume that what is true of the part is true of the whole.

Abba Lerner

Public debt is normally nothing to fear, especially if it is financed within the country itself (but even foreign loans can be beneficent for the economy if invested in the right way). Some members of society hold bonds and earn interest on them, while others pay taxes that ultimately pay the interest on the debt. The debt is not a net burden for society as a whole since the debt ‘cancels’ itself out between the two groups. If the state issues bonds at a low-interest rate, unemployment can be reduced without necessarily resulting in strong inflationary pressure. And the inter-generational burden is also not a real burden since — if used in a suitable way — the debt, through its effects on investments and employment, actually makes future generations net winners. There can, of course, be unwanted negative distributional side effects for the future generation, but that is mostly a minor problem since when our children and grandchildren ‘repay’ the public debt these payments will be made to our children and grandchildren.

To both Keynes and Lerner — as to today’s MMTers — it was evident that the state has the ability to promote full employment and a stable price level — and that it should use its powers to do so. If that means that it has to take on debt and underbalance its budget — so let it be! Public debt is neither good nor bad. It is a means to achieve two over-arching macroeconomic goals — full employment and price stability. What is sacred is not to have a balanced budget or running down public debt per se, regardless of the effects on the macroeconomic goals. If ‘sound finance,’ austerity and balanced budgets means increased unemployment and destabilizing prices, they have to be abandoned.

  1. April 22, 2019 at 10:20 pm

    The discussion seems very relevant for the directions, and scope proposed in the Green New Deal Resolution in the US. Does the trillion dollar cost, multi trillion actually, matter if the future of the country and the planet are at stake? Many parts of the proposal, such as the job guarantee and the cost of modernizing every structure for energy efficiency, have costs savings built in, as does Medicare for all.

  2. Ikonoclast
    April 23, 2019 at 1:30 am

    US infrastructure is crumbling. Have a look at the “Infrastructure Report Card 2017” by the ASCE (American Society of Civil Engineers). The ASCE give the US a mark of D+ overall for infrastructure. The lowest grades are;

    Dams – D
    Drinking Water – D
    Inland Waterways – D
    Levees – D
    Roads – D
    Transit – D

    There is no grade above C+. For the supposedly richest and most advanced country in the world this is atrocious. It should be A’s across the board. The engineers don’t grade health and nutrition obviously. These would certainly be F’s. The nutrition F would follow from the obesity and diabetes epidemics (to name two issues). Education would also be an F. The physical and brain states of humans essentially form the biological and ideational infrastructure of the nation. These states of US citizens are also in a deplorable condition.

    In the face of all this, high infrastructure spending and high health and educational spending are the only ways to save America, let alone make it “great” again. So far, the chances of this happening appear very low. It would take a “state-change” or a “phase change” in American political economy for this to occur. Such a change will continue to be resisted by the vested interests which run the current system. Some kind of critical partial collapse (at least) will have to occur before a phase change becomes politically possible. By that point it is quite likely that the US will be unsalvageable. The rest of the globe need not think it is immune to these processes. As the US goes, the entire globe will go, notwithstanding the fact that China has attained at least equal economic weight.

    It’s in all our best interests that the USA become enlightened in these matters and save itself. Only with the USA, EU and China leading (as the big three) can the world possibly meet sustainability challenges. This would mean domestic programs focused on sustainable systems and human well-being plus international binding agreements to phase out fossil fuel use and other unsustainable practices. The latter must be done in the context of recognizing that we face a global climate and sustainability crisis which on its present course will send extinct a great majority of the species on earth, including humans, by as early as 2100.

    Money is not real. Only real resources are real. Money, in standard terms, is an accounting chit which poorly reflects the real economy, if at all. Money as capital is really a power chit (following Capital as Power theory). Making decisions with money, and allowing those who hold it to make the decisions, is the worst strategy possible in our current situation. The decisions ought to be made democratically after being science-informed. Money decisions which ignore sustainability issues and negative externality issues are what brought us to this crisis point. The strategy which caused the crisis cannot solve it.

    Money decisions (by which I mean decisions which follow money, capital and capitalization logic only) are intrinsically incapable of dealing with real problems. First, we need to make the decisions required. Money (so long as it remains an accounting tool) must be conformed to the real requirements.

  3. Helen Sakho
    April 23, 2019 at 2:40 am

    All will be fine if all economies start trading in “Space Dollars”. I think this should materialise by Pass Over day, if that day has not already past…

  4. April 23, 2019 at 3:47 am

    The Governor of the Bank of Canada pointed out to parliament during WW2 that the growing debt was not a problem because it was a private sector asset. The Finance Minister at the time then raised the issue of how to make the debt an asset of the people.

  5. Craig
    April 23, 2019 at 5:10 am

    Nothing even close to an adequate response to global warming will be accomplished until we have a non-profit national banking/financial system. And everyone needs to get real about that fact….yesterday.

  6. Ken Zimmerman
    April 29, 2019 at 2:44 am

    According to news reports, these are the major issues for the members of the US Congress returning to DC this week.

    “GOP lawmakers returning to Washington are signaling they intend to step up their campaign to look into alleged spying by FBI agents on President Trump’s 2016 campaign.
    The effort comes as Democrats ramp up their own investigations into the Trump administration and could serve as a bit of GOP counter programming to put the spotlight on what Republicans contend is suspicious behavior under the Obama administration.”

    Does this sound like members of Congress have their eye on the ball regarding problem solving? Each of them is being well paid for not solving any problems. Although I do have some hope for the newest “progressive” members of the House.

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