Illustration: Today’s Generation Eating More at Expense of Next 65 Descendants
[UPDATE below.]
OK kids get a cup of coffee and study this thing:
I spent a decent amount of time making sure the above works. I confess I didn’t actually fill in the whole table; I just did the beginning, then skipped to the end and worked backwards. But I’m pretty sure I could fill in the middle part with appropriate taxation of everybody, to get it to all work out and be internally consistent.
Assuming I don’t have any mistakes in the above, are any of you going to tell me with a straight face that Krugman’s readers understood that the above outcome is possible, when he kept telling them (paraphrasing), “The present generation can’t impose burdens on future generations by running deficits today. Sure, they can cause redistribution within a given future generation among people who are living simultaneously. But that’s not at all what people mean when they say that today we can make future generations poorer collectively, the way debt can make a family poorer in the future.”
UPDATE: OK I definitely made at least one mistake in my original version of this; there are only 65 descendants who get hurt by this scheme. This makes sense, because the government debt was original 65 apples, and it is paid down one apple per year.
However, I’m having trouble reconciling that with the brute physical fact that Al and Bob clearly eat 99 more physical apples lifetime than they otherwise would. Since the total number of apples isn’t changed, and since we have each new descendant (up to and including Daniel Kuehn) eating one fewer physical apple lifetime, shouldn’t that imply there are 99 such descendants getting dinged?
I have already spent way too much time on this today. If you guys can help me see what bonehead mistake I’m making, that would be great…
CAP’s Unsustainable Energy Vision
I don’t reproduce all of my Institute for Energy Research (IER) blog posts here, because they are often variations on the same themes. But this one on the Center for American Progress (CAP)’s new study is a good one to represent the kind of stuff I publish at IER’s blog. Some excerpts:
Yes, it is certainly true that in a physical sense, there is a finite amount of energy located within the United States—or planet Earth for that matter—in the form of oil, natural gas, and coal. But by the same token, even solar power is “finite”—the sun will eventually burn out.
For human welfare and government policy decisions, the relevant issue is economic scarcity, not physical scarcity. If we include Canada and Mexico—two countries that are hardly likely to boycott exports to the U.S.—and allow for unconventional recovery techniques, then North America has enough resources to last for literally centuries at current rates of consumption.
…When the economically relevant stockpile of a depletable resource (such as oil) begins to dwindle, its price rises and gives an incentive for entrepreneurs to develop alternatives. We don’t need the government to centrally plan the energy sector, any more than we need the government to run farms lest everyone starve to death. This is standard stuff and it is amazing that the CAP writers would use such dubious rhetoric in appealing to the public.
…
If Not Us, Who?To see the ultimate flaw of the CAP vision, ask yourself this: Suppose someone in the year 1912 said, “Eventually we’re going to run out of oil. So we shouldn’t develop it today, we should instead use ‘sustainable’ energy sources.” This argument would have been just as true a century ago, as it is today. And yet, if people back then had heeded such advice, humanity would have missed out on 100 years of economic growth and the revolution in personal transportation made possible by inexpensive and concentrated energy.
This is the true absurdity of the CAP position. They would never allow humans to enjoy Nature’s gifts, unless these gifts could be reproduced for the rest of time. Under what value system is this sensible? It’s one thing to argue that we should preserve our natural heritage for our grandchildren. But CAP doesn’t want our grandkids having access to domestic energy, either. They are demanding that no one ever use our immense stockpiles of oil, gas, and coal, period. This is a position that makes no economic or even moral sense.
Clark 3, Daddy 0
The following is a lightly edited transcript of recent events in Nashville, TN…
BOB: Okay is the person alive?
CLARK: Yes. He’s in our family.
BOB: OK, you don’t need to tell me that, you just need to say “yes” or “no.” Uh, is it a man?
CLARK: Yes.
BOB: Is he on Mommy’s side of the family or my side?
CLARK: Mommy’s.
BOB: OK is it [Clark’s grandfather]?
CLARK: No.
BOB: OK is it [Clark’s great-grandfather]?
CLARK: No.
BOB: OK is it [Clark’s uncle]?
CLARK: No. It’s Mommy! I tricked you!
BOB: OK well let’s tell the truth with our clues, otherwise there’s no point in asking for clues. OK I’m thinking of somebody.
CLARK: Is he in your family?
BOB: Well, yes, but technically you don’t know if it’s a he or she yet.
CLARK: Uncle Al?
BOB: [shocked] How the heck did you get that so fast?! Yes I was thinking of Uncle Al.
CLARK: OK I’m thinking of someone.
BOB: Is he alive or dead?
CLARK: Dead.
BOB: OK was he famous?
CLARK: Yes, he was a very famous musician.
BOB: OK, but you didn’t need to tell me that, you can just say “yes” or “no.” Do I listen to his music?
CLARK: I don’t know. He died very young.
BOB: Very young…? What the heck…? Buddy Holly?
[Bob flails about helplessly, trying to understand how Clark can know someone famous who died very young. Bob is trying to think of classical musical prodigies that perhaps Clark heard about in school?]
CLARK: Elvis! He died when he was 42. That’s very young. I read it in a book.
All Debt, All the Time: Hoisted from the Comments
Believe it or not, Major Freedom has been defending Abba Lerner in the qualified sense that MF says Lerner didn’t contradict himself, as I implied here. My response:
MF wrote:
All I can say is that the way I understand Lerner is that he is likely worried about whether the money will be spent at all, and that if deficits are for practical reasons the only way to finance government spending, due to the public being dunces and whatnot, then the last thing needed is for Buchanan et al to be going around fear mongering about debt burdening the future generations, and possibly persuading Ike to refrain from the deficit financing and hence the spending Lerner wanted.
Oh, I totally agree with you MF that that’s what he was thinking. But it’s a very weird scenario.
I guess it would be analogous to a situation where a group of travelers is freezing in the mountains, and the only thing they have to burn is a giant voodoo doll of somebody’s kid who’s back in the village. The leader of the group and the other travels are very superstitious, but not the two Western anthropologists traveling with them. The leader doesn’t want to burn the voodoo doll, because even though it will provide them warmth, he thinks it’s wrong to hurt the kid. The Westerner knows this is a baseless fear. However, the rest of the villagers for some weird reason *want* to all die, yet they hate that kid even more than they loathe themselves. So they want the chief to throw the doll in the fire, because they want to hurt that kid.
So one Western anthropologist starts saying, “Well, there *has* been some research on this, and maybe there’s something to this vodoo thing. If the villagers really believe it has the power to do it, maybe it’s a self-fulfilling prophecy. When these people get back to the village, if they are all convinced the kid is going to die, maybe the kid will believe it too and actually die. So I agree with you, chief, don’t burn that for our sakes and risk that kid’s life.”
The other anthropologist is furious. “You idiot! You know vodoo doesn’t work. Keep your mouth shut. Let’s let these villagers demand that he throw the doll in the fire, because they believe vodoo will work.”
Do you see how insane this is?
ADDED: Just to make sure people are getting this: In the above analogy, the Westerner who’s furious can’t let the villagers start doubting the power of voodoo. By construction, they want to die; they will not choose to burn the doll, if they think it won’t hurt the kid. The only reason they will agree to let the chief do it, is if they believe in the power of voodoo.
The same is true for Lerner’s position. Even though he wants Eisenhower to see the truth, he can’t want the general public to realize it. By hypothesis, they are *not* willing to pay for all of Lerner’s desired projects through taxation. For some reason, though, they’ll go along with deficit financing of the same expenditures. They must think this somehow allows them to avoid paying for it, but of course they are idiots (according to Lerner). But he must let them continue in their idiocy. If they ever read his journal article and learned the awful truth–that they are paying for it regardless of how it’s financed–then they wouldn’t want to spend the money even via deficits.
Krugman Sees No Ponzi Scheme Here
Wow, Paul Krugman’s recent post on bubbles, fiat money, Ponzi schemes, and goldbug delusions could literally feed a man. It is amazing that Krugman can write:
It’s true that Social Security is mainly a system in which each generation pays for the previous generation’s retirement, in the expectation that it will receive the same treatment from the next generation. But like monetary circulation, this process can go on forever; there’s nothing unsustainable about it (yes, demography, but that’s about the levels of taxes and benefits, not the fundamental nature of the scheme). So there’s nothing Ponziesque at all. [Bold added.]
when he himself wrote in 1996 (or is it 1997? not clear):
I like Freeman’s idea of providing each individual with a trust fund when young rather than retirement benefits when old, but we had better realize that this is a significant change in the character of the social insurance system. Social Security is structured from the point of view of the recipients as if it were an ordinary retirement plan: what you get out depends on what you put in. So it does not look like a redistributionist scheme. In practice it has turned out to be strongly redistributionist, but only because of its Ponzi game aspect, in which each generation takes more out than it put in. Well, the Ponzi game will soon be over, thanks to changing demographics, so that the typical recipient henceforth will get only about as much as he or she put in (and today’s young may well get less than they put in). [Bold added.]
I mean seriously, this guy should get an award. (And yes, I know Krugman already “explained” the above–more right-wing lies and “gotcha” moments, I know I know.)
Details on Pre-Music City Liberty Fest Karaoke Night Nov 2
A special guest helps me get the word out…
Abba Lerner’s Article on Debt Burdens
Gene Callahan has done an important thing for our never-ending debate by bringing in Abba Lerner’s 1961 statement on the issue. It is almost eery how similar his arguments were to the exposition I gave here. In particular, we both saw the rhetorical usefulness of stressing how there isn’t a time machine; he even capitalized the phrase. Some quick reactions:
==> Here is the specific quotation from President Eisenhower’s 1960 State of the Union address that Lerner thought was evidence that he was a dunce: “Personally, I do not feel that any amount can be properly called a surplus as long as the nation is in debt. I prefer to think of such an item as a reduction on our children’s inherited mortgage.”
==> Like the other economists to whom Lerner is responding (Bowen, Davis, Kopf, and James Buchanan), I want to say that I Like Ike. There is nothing wrong with his statement.
==> So do economists have nothing to say on this? Of course they do! I’m not saying Eisenhower did a 10-period OLG apple model before giving his speech, to make sure it made sense. Of course Eisenhower never even thought about, “Wait a second… How can we be consuming at the expense of our grandchildren without a time machine? I don’t want to start funding a time machine…the private corporations would never allow future presidents to axe the program.”
==> Lerner’s central thesis–that all present production comes out of present resources–is essential and an important insight. Indeed, Ludwig von Mises made the same point, when talking about “paying for” a war. It was Mises who actually sent me down this path. Of course, the genius Mises didn’t take a wrong turn with that correct insight; he knew that that observation didn’t therefore imply, “So we can’t burden our grandkids with debt, since they’ll owe it to themselves.”
== Last point. I have a genuine question for the Lerner lovers. He concludes with this:
There is even a clear and present danger that because of a baseless fear of impoverishing future generations by leaving them with a larger internal debt (which they will owe to themselves), we may fail to protect them from nuclear war and/or totalitarian domination; the confusion sown by Bowen et al. tends to increase that danger. It is to be hoped that these authors will tell the President that they were using a special language of their own and didn’t mean what they seemed to be saying…
So I’m confused. How can it possibly be that the “baseless fear” sown by Bowen et al. can prevent vital federal government expenditures? I mean, Lerner has spent the whole article explaining that whether it’s financed through taxes or deficits, it’s the present generation who pay for the expenditure. It’s not like we can pass off that burden to people living in the future.
So, if Lerner agrees that these expenditures would go through with deficit financing, then why can’t the government implement them with tax-financing?
Once you answer that, you will see why Lerner, Callahan, and Krugman are so wrong, and President Eisenhower’s man-on-the-street remarks are perfectly sensible.
Render Unto Benjamin What Is Benjamin’s
Just a quick one tonight: I was explaining to my son all of the cool examples of Jesus swatting away the traps that the religious leaders were laying for Him, and of course I discussed the question of whether it was lawful to pay taxes to Caesar.
(Incidentally, I really set this up for him–he’s 7–to make sure he got why it was a trap. I explained that if Jesus said yes, then His hardcore followers would be disappointed and perhaps abandon Him. But if He said no, then the Romans would have to do something with Him because you can’t have rabble rousers running ’round telling people to stop pay taxes to Caesar. I said, “So if He says yes He loses, and if He says no He loses. Do you see why they thought they were going to trap Jesus with that question?” It was great to see the comprehension dawn on his face. In three years I am going to show him how the present generation can steal apples from their grandkids without a time machine; I imagine his reaction will be similar.)
I then explained that Jesus couldn’t simply duck the question either; He had to say something that sounded profound, and yet eluded the trap. I illustrated like this: “He can’t just say, ‘Uh, I have to go to the bathroom!'” as I walked awkwardly away. Good stuff.
As I started telling the answer, I wanted to make sure that my son understood what I meant when I said that the Roman emperor–the one to whom the Jewish people had to pay the hated tax–had his face on the coin. So I walked over to my wallet and pulled out a dollar bill and asked my son, “Who is that?” My son had just learned about Washington in school, so I knew he would know.
Some of you may be thinking, “OK, with you so far Bob, what’s the punchline of the story here?” That was the punchline. Beyond the State wanting to control money for financial reasons, it also is a great way to give their subjects a subconscious association of earthly success and the person embodying the State.
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