You guys aren’t going to believe it, but I have had another epiphany. The debt and future generations issue is like this:
At first I was deeply troubled, because I realized that I had said at least two false things in my arguments with Ken B. today, and that I had unfairly dismissed a point that “stickman” and Daniel Kuehn had brought up.
But now that I have achieved a higher level of consciousness, I don’t care. All of God’s children have added something to this fascinating issue. I need to let it sink in over the weekend. Next week I will have lots of pretty Excel examples to illustrate everything.
I know, some of you would go insane if I left you hanging for three days in agony. Here’s a hint, a comment I left at Nick Rowe’s blog:
Lord, I agree with you that it’s not just the servicing of the debt, but paying the debt down, that is the crucial thing.
Nick, you aren’t going to believe this, but I’m taking a giant step toward the MMT camp on this. Before, I thought the issue was future generations being taxed to service the debt, but now I’m thinking the only way you make them poorer on net is if the taxes to deal with the debt are higher than the interest payments to the debtholders. So that means, only if the debt is shrinking. In the examples I cooked up–and I think you too?–the way you make everybody alive in period X poorer, is you have net debt reduction. I think if middle generations just floated the debt without moving it up or down, then they break even collectively.
Gasp, dare I say it, they break even because they are paying the interest to themselves? Real GDP is unaffected so total income is unaffected?
I am not going to do a formal post until Monday, Nick, so if you think I’m being seduced by the Dark Side you have the weekend to save me…
Four last points for now:
==(1)==> If I’m thinking about this correctly (a big if, since I was doing this in my head while getting ripped at the gym), it really is the creation of new government debt that allows the present generation to enrich itself at the expense of “people in the future” collectively, but if you never pay down the debt, then that impoverishment is indefinitely postponed.
==(2)==> Those of you who have been telling me, “Bob, what the )#(*%$39 is your problem, stop doing flow analyses, do it in terms of balance sheets! Then it’s obvious that government debt PER SE makes future generations poorer,”… all I can say is, at least I admit when I should have listened to you sooner.
==(3)==> Once you get your head wrapped around the above, take it even further and ask yourself: Why wouldn’t the immediate generation automatically push itself to the debt limit? Why might it, for example, even run a budget surplus and hand that down to its descendants? (Here’s a hint: Suppose we still have an apple endowment economy, but the harvests are really good some years and awful other years. Throw in a modicum of altruism for the next generation. Now ask yourself whether Krugman has been “basically right” on this…)
==(4)==> You guys work on this with the TA until I get back. I have to go to the karaoke bar and practice for Tatianna’s visit in two weeks…