05 Jan 2012

Murphy Watching Out for Freedom Tonight

Financial Economics, Krugman, Shameless Self-Promotion 13 Comments

Just finished taping with the Judge. Topic: Paul Krugman and “we owe the debt to ourselves.” Since some of you seem unmoved by crystal clear counterexamples, perhaps my soundbite on Fox will move you.

13 Responses to “Murphy Watching Out for Freedom Tonight”

  1. Bobgroupie says:

    Can you post a link when one becomes available please?

  2. Daniel Kuehn says:

    Did you tell him you used to agree with Krugman?

    • Joseph Fetz says:

      Daniel, it’s television. You don’t just get to say whatever you want to, and you certainly don’t get into the deeper theoretical considerations. If Bob would have said that he agreed with PK, then he would just look like an ass because he would not be able to express the deeper context of what he believed prior vs what he believes today. The audience would be entirely confused and wouldn’t know WTF Bob is talking about.

      It’d be nice if people could discuss these things in more depth on TV, but that just isn’t going to happen anytime soon. The audience would be so out of depth with the context of the material that nobody would watch it. Good hosts know when to change gears when this happens.

      It’s sad but true.

    • Sealander says:

      Haha. Zing!

  3. Christopher says:

    Dr. Murphy, I have a question if I may. I understand that you are saying that we are actually making future generations net poorer by borrowing. If so, would you also say that

    if all governments in the world just borrowed enough money from its citizens to debt finance current social programs, we could, in theory, cause the entire world to starve in 100 years because their tax burden would be so high that they would have to give away all the food they produce to pay for the entitlements of 100 years earlier. (let’s rule out a default)

    If you think that’s possible, please explain what would happen to the food after it is taxed away.
    If you think it is not possible, please explain why you think that we are able to make future generations poorer, but not as poor as to starve.

    • Matt says:

      Christoper, government debt and spending distort or destroy a given capital structure. This distortion is what might cause starvation. Food isn’t taxed, money is.

    • Strat says:

      You have to make a distinction between future generations and people in the future.

      Murphy is arguing that younger people will be forced to hand over money to older people in the future (or older foreigners,) because of the money being spent today.

      Ofcourse NO physical resources can be transported back in time (only forwards.)

      And obviusly the younger people werent given the oppurtunity to originate the loan. even if they were to buy all the bonds at a later date, they would still be worse off, had none of it happened, because they have to pay a higher tax rate to cover the loans interest.

      In conclusion, the people in t1 benefit, the people in t2 are worse off. and this is done via a loan and a tax.

      • Strat says:

        Now to your food example. (which is abit silly, seen as its wayy to extreme and becomes sci-fi)

        Say the government spent SOO much that the tax rate is enormous, and young people couldn’t even afford food.

        so it would have to be an 100% effective tax rate (people who are starving would prefer to eat more than anything else.)

        and a massive flow of currency would be sent out of the country every year to pay off the debt. (no bondholders would reside in a country with 100% effective tax.)

        lets assume people work (fear of being whipped,) whatever they produce legally would then be given to the bondholders.

        So people in America would be starving to death being whipped by the government, and all the produce given to the bondholders (for a bit of FOX stereotypics, well assume all bonds are owned by the chinese.)

        Obviously this scenario is far-fetched, people wouldnt work for free, governments wouldn’t have any support for paying its bills etc.

      • Christopher says:


        I have no objections to what you are saying. But it is not what Dr. Murphy is saying.
        If he said that money will would be transferred from “the young” to “the old” or from person X to person Y, because of our borrowing now, I would agree. But you call that redistribution.
        The difference between redistribution and net minus is that the former is eqal to taxation. It depends on a govt decission of whom to tax in the future – not now. The govt could, for example, say the taxrate for peope between 20-30 be 50% and that receiving social security benefits require you to be at least 60. This govt decission in the future–not now–would effect the same result as what you just described without any borrowing at all. In contrast, even if we accumulate a lot of govt debt, if the future govt just said that every bondholder pay taxes to the amount of the bonds he owned, there would be no redistribution in the future.
        All very unrealistic scenarios, but they show that whether there will be a transfer of wealth and who will be the transferee depends on decisions to be made at that time–our borrowing now doesn’t determine that. That is the difference between causing a redistribution effect and making everyone in the future poorer. And by no means do we determine that the redistribution will be from the young to the old, if by some chance at a certain point in time many people in their 20th inherited a huge amount of bonds from their parents, the transfer could even happen from the old to the young.

        • Strat says:

          Yes, okay the government could force 70 year olds to pay the taxes. But is that going to likely happen?

          an added tax to bondholders is equal to a default. Think about it…

          in general effective tax rates now will be lower then they otherwise would have, and in the future effective tax rates will be higher in the future then they otherwise would have. (because of these loans)

          who are likely to be paying those higher taxes? the next generation in 30ish years. But…… as a kicker I really dont think the debt limit will be raised for 30 straight years, i rekon the CB will just buy all the debt, they already own close to 60%. Meaning that the people today will end up paying for it (well those with dollars will.)

          • Strat says:

            again the transfer wont be from the old to the young ever.

            The transfer was put in place when the bond was issued, not when it gets closed. The younger person that owns the bond still has to pay the higher tax rate no matter what.

          • Christopher says:


            I am currious. What do you think about this chart modelled after Dr. Murphy’s.


            It shows a society going deeper into debt every generation on an unsustainable path that will ultimately leed to default and yet it seems that the youngest generation benefits the most.

            I am not saying that Dr. Murphy’s scenario can’t happen, neither am I saying that mine does descibe the actual state of e.g. the US economy. I am saying both are possible and which is actually happening depends on additional questions and can not only be answered by looking at the debt count.

  4. Bob Roddis says:

    Here’s the link to the video:


    Personally, I’m just SHOCKED to learn that this problem might be understood with common sense.

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