Why government debt is not a burden on future generations

[Former Dean Phillips Supporters for Haley (I guess???!?) 👁️]

Yes, you have more money because of less taxes, but that means the deficits are ballooning. This will only hurt future generations and future budgets (interest on the debt is getting out of hand).

That's completely fallacious nonsense on about 50 different levels.

List them.

OK, I'll just start with the most basic level on which it is mistaken for the moment (and probably to be fair I should have just said that it is "mistaken" rather than saying that it is "fallacious nonsense," so if you are interested in serious discussion about it, then sorry for that - it's a nicer way to say that it is wrong.).

I will use a simplified example to make this easy to understand.

Assume that if the government lowers taxes, this does in fact imply that the government budget deficits increase and that the government must in this case necessarily issue bonds and pay interest on them (this is mistaken, but let's assume it for the sake of argument), and also assume that in order to pay the interest the government needs to collect taxes equal to the interest payment (this is also strictly speaking mistaken, but there is a limited element of truth to it in a particular sense, though there is not in a 1-to-1 correspondence in the sense of there being a need to collect 1 dollar of taxes in order to pay 1 dollar of interest).

Let's think about what happens in 2 time periods - today (the time of the "current generation," which we will call period 1), and the future (the time of the "future generation," which we will call period 2). In the "today" time period, we have 2 people, a taxpayer and a bondholder. The taxpayer and the bondholder each have a child, and the child of the bondholder will inherit the bond from the bondholder in the future period, while the child of the taxpayer will inherit nothing.


--- TODAY (CURRENT PERIOD, i.e. PERIOD 1) ---

GDP is some arbitrary amount. Let's say that GDP is $10, and both the two people in the economy (current-period-taxpayer and current-period-bondholder have $5 out of that income).

The government sells a bond, and the current-period-bondholder buys the bond. In the future period, the government is now contractually obligated to pay interest (let's say $1 of interest) to whoever holds the bond. So at the end of this period, our situation is this:

• period-1-taxpayer - Has $5 of income. Has a child called period-2-taxpayer.
• period-1-bondholder - Has $5 of income. Has a bond. Has a child called period-2-bondholder.

--- FUTURE (FUTURE PERIOD, i.e. PERIOD 2) ---

GDP is some arbitrary amount. It could still be $10, or it could be higher, or (in principle) lower. Let's say that it is now $20, and that both of the two people have half of that, or $10 of income (period-2-taxpayer and period-2-bondholder both have $10 out of that income).

period-1-taxpayer and period-1-bondholder have died as we passed into this future-period. So now period-2-taxpayer and period-2-bondholder have grown up, and period-2-bondholder has inherited the bond from period-1-bondholder.

So, prior to the payment of interest on the bond, our situation is this:

• future-period-taxpayer - Has $10 of income. Also since we have no taxes yet, their disposable income (income after taxes) is $10.
• current-period-bondholder - Has $10 of income. Also since we have no taxes yet, their disposable income (income after taxes) is $10.

That means that total GDP (i.e. total income in the economy) is $20.

Now, the interest is due on the bond. The government raises taxes by $1 and makes the payment of $1 of interest to future-period-bondholder. So, our situation now is this:

• future-period-taxpayer - Has $10 of income. Pays $1 in taxes to the government, so their after-tax disposable income is $9.
• current-period-bondholder - Has $10 of income. Receives $1 in interest payments from the government, so their after-tax disposable income is $11.

Now, after the taxation and the interest payment, the total income (GDP) in the economy is still $20. the $9 disposable income of future-period-taxpayer plus the $11 disposable income of current-period-bondholder is $9 + $11 = $20.

So, GDP/income in the economy as a whole is not changed by the existence of the bond and the interest payment. It was $20 before, and is $20 after.

Interest payments are just a transfer payment from one person to another person. The income paid must come from somewhere, and it must also go somewhere. It does not increase the total amount of income in the economy, and also does not increase it. So while the fact that this transfer occurs does make some people better off (namely the recipients of the interest) and some people worse off (namely the taxpayers), it does not make society as a whole either better off or worse off than if there were no interest payment. Society as a whole still has the same Income/GDP, there is just a different distribution of income.

Don't get me wrong, distribution of income is important. But it is nonetheless incorrect and misleading to say that the future society as a whole is "burdened" by the interest payments. Rather, the correct description of what happens would be that a particular person in the future society (i.e. the taxpayer) is burdened in the sense that they have to pay $1 in taxes, but this is precisely offset by someone else in the future generation (i.e. the bondholders) who receives $1 in interest payments. Overall the future generation is just as well off as if there were no bond, no interest payment, and no government debt.


Note also that, in principle, rather than raising the taxes of period-2-taxpayer by $1, the government could also collect $1 in taxes by raising the taxes of period-2-bondholder by $1 instead. In that case, the situation would be:

• future-period-taxpayer - Has $10 of income. Their after-tax disposable income is also $10, because they neither pay taxes nor are receiving any interest.
• current-period-bondholder - Has $10 of income. Pays $1 in taxes to the government, so their after-tax disposable income is $9. Receives $1 in interest payments from the government, so their after-tax disposable income is $11.

Now, after the taxation and the interest payment, the total income (GDP) in the economy is still $20. the $9 disposable income of future-period-taxpayer plus the $11 disposable income of current-period-bondholder is $9 + $11 = $20.

Likewise in this case, GDP/income in the economy as a whole is not changed by the existence of the bond and the interest payment. It was $20 before, and is $20 after.

And in addition, in this case the distribution of income amongst the future generation is also unchanged by the existence of the bond and the interest payment that were inherited from the past. Both future-period-taxpayer and future-period-bondholder have $10 of income both before the taxation and interest payment, and also after the taxation and interest payment.

Of course, you could also have a scenario in which the taxes of both future-period-taxpayer and future-period-bondholder were raised by 50 cents each, which would be an intermediate case as compared to raising taxes on either of them by $1 and on the other by $0.


In this case, not only is society as a whole in the future just as well off as if there were no bond and no interest payment, but the distribution of income in the future society is also exactly the same as if there were no bond and no interest payment. Not only is the future generation as a whole not "burdened" in this case by the existence of the bond and the interest payment, but no individual in the future generation is any better off or any worse off than if there were no bond and no commitment-of-the-government-to-pay-interest-on-bonds inherited from the past at all.


It can also help to think about this in terms of real goods and services, rather than in terms of abstract money, and abstract GDP/income. Let's say there is only 1 type of good/service in the economy - canned food. Let's say the government runs a deficit, issues bonds, and sends Grandma a "tax-relief" check, and Grandma buys some canned food using her "tax-relief" check. There is now more demand for canned food thanks to Grandma, but there is no direct instantaneous effect on the supply of canned food. The additional canned food that Grandma is demanding cannot be transferred from a future generation back to Grandma in the present, because we do not have time machines that are capable of transporting real goods and services from the future to the present. Although the government is "borrowing money," (if you want to call it that) it is not possible to borrow the canned food, which is a real physical thing, from the future.

So in real terms, the increase in spending resulting from the government running a deficit to pay "tax-relief" checks is not a burden on future generations. It does not change the income of future generations, in any direct way, and does not take any real goods and services from them and transport them back in time to the present. Rather, if it is a burden on anything, it is a burden on the current generation's supply of canned food - we must somehow get the canned food to meet Grandma's demand in order for Grandma to have canned food, either by taking away some canned food from someone else who would otherwise have it to make it available to Grandma, or perhaps alternatively by hiring an unemployed person to produce a larger supply of canned food than we would otherwise have, if there are unemployed people. So if you really are committed to saying that government spending/debt is a burden on someone, it is much more correct to say that it is a burden on the current generation than to say that it is a burden on future generations. And it is only a "burden" on  the current generation in the sense that increased demand for goods is a burden. In real terms, if that burden can be met simply by hiring an unemployed person to produce more canned goods, then it is not really much of a "burden," insofar as the unemployed person presumably wants a job. The unemployed person would be very happy to make more canned food and thereby to have a job and increase GDP, and would not consider this to be a "burden." So then it is only a burden in any actual meaningful sense if everyone who wants to be employed is already employed as efficiently as possible with society's current technology.

[True Federalist (진정한 연방 주의자)]

The fundamental flaw in your analysis is that it assumes all debt is domestically owned.

[Kyle Rittenhouse is a Political Prisoner]

The fundamental flaw in your analysis is that it assumes all debt is domestically owned.

[136or142]

What you are arguing is essentially one form at least of what is known as Modern Monetary Theory.  The left wing version of MMT is known as Chartalism.  For what it's worth I consider it to be the modern equivalent of either alchemy or a perpetual motion machine.  I always suggest being very wary of concepts that suggest 'something for nothing' is possible.

[Former Dean Phillips Supporters for Haley (I guess???!?) 👁️]

What you are arguing is essentially one form at least of what is known as Modern Monetary Theory.  The left wing version of MMT is known as Chartalism.  For what it's worth I consider it to be the modern equivalent of either alchemy or a perpetual motion machine.  I always suggest being very wary of concepts that suggest 'something for nothing' is possible.

This is incorrect, the argument I made above is not MMT/Chartalism. The other/deeper levels on which the argument that government debt is not a burden do rely on MMT/Chartalist arguments, but I explicitly assumed for the sake of argument that I was not (at least for the moment, in that post) making any such assumptions:

Assume that if the government lowers taxes, this does in fact imply that the government budget deficits increase and that the government must in this case necessarily issue bonds and pay interest on them (this is mistaken, but let's assume it for the sake of argument), and also assume that in order to pay the interest the government needs to collect taxes equal to the interest payment (this is also strictly speaking mistaken, but there is a limited element of truth to it in a particular sense, though there is not in a 1-to-1 correspondence in the sense of there being a need to collect 1 dollar of taxes in order to pay 1 dollar of interest).

I am not a Calthrina-type who cries ad-hominem foul at the littlest thing, but given that a discussion like this requires serious effort posts, it is just not worth the effort to try to engage in discussion with you given past experience trying to engage with you and finding that you did not seem interested in arguing in good faith, and given that your immediate first resort here now is to ad-hominem.

I am happy to discuss this with people who are willing to engage in good faith on the basis of substantive arguments, but if you want to discuss this with me, given your history and your current post, the burden is on you to demonstrate that you are willing to engage in good faith in reasoned argumentation.

Anyway, please take this as notice that I will not engage with you further unless you take active and substantive steps to demonstrate that you actually wish to have a good faith reasoned argument, rather than simply a flame war of the sort that you get into so often with so many people.

On that note, I will respond to True Federalist/Jalaketu West, who provide an example of how to make a good point/reasoned objection in good faith, but it will take some time for me to respond.

[Badger]

Greece and Portugal say hello.

As does the 1/6 and rapidly growing portion of the US budget spent solely on interest payments rather than education, Environmental Protection, and health Care.

[PSOL]

Greece and Portugal say hello.

As does the 1/6 and rapidly growing portion of the US budget spent solely on interest payments rather than education, Environmental Protection, and health Care.

Their debt often exceeds several times over their GDP/Earnings. Germany and other west European countries often spend 10-15% over their GDP, albeit they try to put it in investments such as education and healthcare.

[RI]

In addition to the above, you're not considering the effect of government borrowing on interest rates, the loanable funds market, and private investment.

[136or142]

What you are arguing is essentially one form at least of what is known as Modern Monetary Theory.  The left wing version of MMT is known as Chartalism.  For what it's worth I consider it to be the modern equivalent of either alchemy or a perpetual motion machine.  I always suggest being very wary of concepts that suggest 'something for nothing' is possible.

This is incorrect, the argument I made above is not MMT/Chartalism. The other/deeper levels on which the argument that government debt is not a burden do rely on MMT/Chartalist arguments, but I explicitly assumed for the sake of argument that I was not (at least for the moment, in that post) making any such assumptions:

Assume that if the government lowers taxes, this does in fact imply that the government budget deficits increase and that the government must in this case necessarily issue bonds and pay interest on them (this is mistaken, but let's assume it for the sake of argument), and also assume that in order to pay the interest the government needs to collect taxes equal to the interest payment (this is also strictly speaking mistaken, but there is a limited element of truth to it in a particular sense, though there is not in a 1-to-1 correspondence in the sense of there being a need to collect 1 dollar of taxes in order to pay 1 dollar of interest).

I am not a Calthrina-type who cries ad-hominem foul at the littlest thing, but given that a discussion like this requires serious effort posts, it is just not worth the effort to try to engage in discussion with you given past experience trying to engage with you and finding that you did not seem interested in arguing in good faith, and given that your immediate first resort here now is to ad-hominem.

I am happy to discuss this with people who are willing to engage in good faith on the basis of substantive arguments, but if you want to discuss this with me, given your history and your current post, the burden is on you to demonstrate that you are willing to engage in good faith in reasoned argumentation.

Anyway, please take this as notice that I will not engage with you further unless you take active and substantive steps to demonstrate that you actually wish to have a good faith reasoned argument, rather than simply a flame war of the sort that you get into so often with so many people.

On that note, I will respond to True Federalist/Jalaketu West, who provide an example of how to make a good point/reasoned objection in good faith, but it will take some time for me to respond.

It's not Chartalism, it is Modern Monetary Theory which argues that deficits don't matter on the basis of balance of payments.  As True Federalist pointed out, your thesis assumes that all debt is held internally.

There is no serious good faith discussion here to be had due to what I wrote above, you have presented a seriously flawed economic argument (and it's non an ad-homenim in the slightest, you are explicitly arguing the notion that you can get something for nothing - "we can borrow as much as we want since we actually just owe it to ourselves.")

RI them pointed out the flaw in that argument: the second order effects of government deficit spending:  higher interest rates, inflation.  The first thing taught in an a first level macro economics class: "There is no such thing as a free lunch."

That aside, there are credible arguments that
1.Government deficit spending  isn't inherently bad.  If the deficit spending, for instance on infrastructure, provides a greater long term rate of return than if the private sector had spent the money, it's beneficial. This is, of course, a cost/benefit analysis, however, as economists prefer marginal analysis, the proper analysis is on the basis of the equimarginal principle.  Of course, this is the Neoclassical view of economics and not this alchemist Modern Monetary Theory view of economics.

2.It is certainly true that 'government deficits are a moral failure because our children will have to pay it back' is nonsense.  As long as the interest payments are sustainable, governments can continue rolling over the debt for imperpetuity.  

[Kingpoleon]

... So this would work if we didn’t pay interest except for when we decide we want to pay interest.

[Progressive Pessimist]

The national debt is indeed an overblown issue. The problem though, is one party adds to it more than the other while also pretending to care that reducing it is a priority, mostly when the other party is in power.

[ProudModerate2]

Greece and Portugal say hello.

As does the 1/6 and rapidly growing portion of the US budget spent solely on interest payments rather than education, Environmental Protection, and health Care.

[Technocracy Timmy]

Greece and Portugal say hello.

As does the 1/6 and rapidly growing portion of the US budget spent solely on interest payments rather than education, Environmental Protection, and health Care.

This isn’t a fair comparison given that the US can print their own money and that the USD is the world currency reserve by a factor of 3 over the next closest one, the euro.

[136or142]

Greece and Portugal say hello.

As does the 1/6 and rapidly growing portion of the US budget spent solely on interest payments rather than education, Environmental Protection, and health Care.

This isn’t a fair comparison given that the US can print their own money and that the USD is the world currency reserve by a factor of 3 over the next closest one, the euro.

1.Printing money is under normal circumstances, of course, inflationary.

2,Should the U.S routinely print money, it certainly places itself in a position where other nations, notably China and Russia, OPEC nations and maybe even India would threaten to drop the U.S $ as the world reserve currency, and might even do so.  The U.S $ is not the world reserve currency by some natural law, but is by international agreement.

[Technocracy Timmy]

Greece and Portugal say hello.

As does the 1/6 and rapidly growing portion of the US budget spent solely on interest payments rather than education, Environmental Protection, and health Care.

This isn’t a fair comparison given that the US can print their own money and that the USD is the world currency reserve by a factor of 3 over the next closest one, the euro.

1.Printing money is under normal circumstances, of course, inflationary.

2,Should the U.S routinely print money, it certainly places itself in a position where other nations, notably China and Russia, OPEC nations and maybe even India would threaten to drop the U.S $ as the world reserve currency, and might even do so.  The U.S $ is not the world reserve currency by some natural law, but is by international agreement.

I don’t disagree. But comparing the US’s debt to Greece or Portugal is still dumb and that was the point.

We aren’t even remotely at risk of becoming the next Greece.

[136or142]

Greece and Portugal say hello.

As does the 1/6 and rapidly growing portion of the US budget spent solely on interest payments rather than education, Environmental Protection, and health Care.

This isn’t a fair comparison given that the US can print their own money and that the USD is the world currency reserve by a factor of 3 over the next closest one, the euro.

1.Printing money is under normal circumstances, of course, inflationary.

2,Should the U.S routinely print money, it certainly places itself in a position where other nations, notably China and Russia, OPEC nations and maybe even India would threaten to drop the U.S $ as the world reserve currency, and might even do so.  The U.S $ is not the world reserve currency by some natural law, but is by international agreement.

I don’t disagree. But comparing the US’s debt to Greece or Portugal is still dumb and that was the point.

We aren’t even remotely at risk of becoming the next Greece.

I don't doubt that is true, but with $1 trillion annual federal government deficits 'for as far as the eye can see' I don't know how long it will be before the U.S hits the 'debt wall' (this is different than the artificial 'debt ceiling.'  This is especially the case if, in fact, other nations do decide to stop using the U.S $ as the world reserve currency.

[Amenhotep Bakari-Sellers]

Due to fact that the debt is made up of SOCIAL SECURITY and trade deficit. All you have to do is reform both. There will still be a debt, nothing you can do about it