Comments for Children and Grandchilden Do Not Pay for Budget Deficits, They Get Interest on the Bonds at http://www.cepr.net , comment 1 to 34 out of 20 comments http://www.cepr.net Thu, 23 May 2013 10:15:52 +0100 FeedCreator 1.7.3 http://www.cepr.net/index.php/blogs/beat-the-press/children-and-grandchilden-do-not-pay-for-budget-deficits-they-get-interest-on-the-bonds#comment-19527 Hadrian said it very well. The future generation(s) inherit the liability - the asset was spent years ago. He wroite "The future generations pay the bill to extinguish a debt which does not correspond to an asset for future generations." Nick said the same in a different set of words: "The liability is shared across the new tax base, but the asset is not." Don Levit - Don Levit Fri, 12 Oct 2012 04:39:47 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/children-and-grandchilden-do-not-pay-for-budget-deficits-they-get-interest-on-the-bonds#comment-19526 It is ridiculous to be insouciant about debt which, if ever repaid, will be repaid by this generation's descendants, especially when the owing of a huge proportion of the debt to foreigners completely negates the idea that the debt will be incoming assets in the hands of the next generations. So it is not a "budget" or fiscal problem, just a trade problem caused by an overvalued currency. Absurd on at least two substantial grounds. The overvalued currency is itself an indulgence of this generation at the expens[u][/u]e of future generations who will not be able to continue the overvaluation which allows cheap imports that prop up the real spending power of today's consumers. The other main ground is that so much of the money spent by government is wasted and never going to be of any value to future generations. The biggest wastes are the costs of Bush's wars. So, instead of the current generation paying for such extravagances by paying more tax they borrow the money and require future generations to finally pay the bill to extinguish a debt which does not correspond to an asset of any value for future generations. - Hadrian Fri, 12 Oct 2012 04:14:39 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/children-and-grandchilden-do-not-pay-for-budget-deficits-they-get-interest-on-the-bonds#comment-19524 [b]GDP = Federal Spending + Non-federal Spending - Net Imports[/b] This says, if we increase Federal Spending and decrease taxes (to help increase Non-federal Spending), we grow the economy. Those who fear federal debt do not understand the differences between Monetary Sovereignty and monetary non-sovereignty. [url]http://rodgermmitchell.wordpress.com/2010/08/13/monetarily-sovereign-the-key-to-understanding-economics/[/url] Rodger Malcolm Mitchell - Rodger Malcolm Mitchell Fri, 12 Oct 2012 03:54:37 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/children-and-grandchilden-do-not-pay-for-budget-deficits-they-get-interest-on-the-bonds#comment-19518 To state otherwise as a Rule is truly idiotic. If today, we cut taxes to zero, and spend trillions building bridges to nowhere, do you really think the next generation will suffer no adverse consequences? Doesn't it matter what the government spends our money on? Debt overhangs have always been associated with lower growth, sometimes lower growth for generations. Think modern-day Japan. If our generation doesn't figure this out, surely our children, or our grandchilden, will begin to incorporate the increasing liklihood of the eventual fiscal consolidation into their spending and investing. How could they not? And that sort of thinking carries with it enormous costs. Again, think modern day Japan. It's amazing, and downright weird, that you would deny the theoretical possibility that bad fiscal planning today has no adverse effects on future generations. As for your sector balance view, remember, Public sector debt (and interest on this debt) = private sector wealth ONLY when the private sector remains convinced that this "wealth" will endure, and not be defaulted upon or inflated away. Got it? - Nick R. -- Kyoto Japan Fri, 12 Oct 2012 01:49:35 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/children-and-grandchilden-do-not-pay-for-budget-deficits-they-get-interest-on-the-bonds#comment-19516 [url]http://anamecon.blogspot.com/2012/10/inter-generational-borrowing.html[/url] - greg Thu, 11 Oct 2012 20:48:35 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/children-and-grandchilden-do-not-pay-for-budget-deficits-they-get-interest-on-the-bonds#comment-19515 If I read Nick Rowe right, he assumes (in a toy economy consisting only of apples) that A: Apples don’t last. And concludes: B: Each generation, in borrowing apples from their children, consumes an increasing share of the apples produced by their children. That is, each generation consumes more than they themselves produced, taking from the production of their children. (The second generation gives apples to the first, but borrows even more from the third, etc.) I think this is correct, and is Nick’s point. There is a transfer of wealth between generations. And Dean Baker, who claims there is no such transfer, is wrong. If I read this right, then the only moral position is to grow the economy at a rate greater than the increase in (real) inter-generational borrowing. That is, plant apple trees at an increasing rate, greater than the increase in inter-generational borrowing. But this requires (it seems to me) that the present generation consume less than they would if they hadn’t borrowed in the first place. That is, the present generation must invest more than they borrow. But in terms of the present, [i]real[/i] value, this just means the present generation should consume [i]less[/i] than they produce, and invest the rest. The borrowing of [i]money[/i] is irrelevant, except where it affects this. In fact, the borrowing of money is rather inverted, because the younger generation is forced to borrow from the older, established, wealthier generation, pay the older generation back with interest, and thus end up with a diminished share of the pie. See more at: http://anamecon.blogspot.com/2012/10/inter-generational-borrowing.html - greg Thu, 11 Oct 2012 20:42:30 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/children-and-grandchilden-do-not-pay-for-budget-deficits-they-get-interest-on-the-bonds#comment-19514 http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/10/the-burden-of-the-bad-monetary-policy-on-future-generations.html - Nick Rowe Thu, 11 Oct 2012 15:56:47 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/children-and-grandchilden-do-not-pay-for-budget-deficits-they-get-interest-on-the-bonds#comment-19513 A government bond is an asset, insofar as it is a liability to taxpayers. Assuming away distribution effects, assets and liabilities balance in the existing cohort. Then new people are born, and become part of the tax base. The liability is shared across the new (wider) tax base, but the asset is not. The older cohort have acquired a net asset (which they have not had to forego consumption to purchase purchase), and the younger cohort a net liability. There's your burden (unless the liability is extinguished through bequest, or is perpetually transferred by selling on the bonds to each successive generation). - Richard Williamson Thu, 11 Oct 2012 13:57:47 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/children-and-grandchilden-do-not-pay-for-budget-deficits-they-get-interest-on-the-bonds#comment-19512 The debt will be am asset for future generations that hold these bonds. Correct. And the bonds are also a liability to the Treasury, which results in an acounting "wash' From a cash (budget) perspective,the liability part will have to be paid back via new general revemnues - the same way we pay all expenses, whether in trust or not. In other words, the asset is an unfunded asset, one which cannot be liquidated as if it was a pre-paid investment. Don Levit - Don Levit Thu, 11 Oct 2012 13:56:07 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/children-and-grandchilden-do-not-pay-for-budget-deficits-they-get-interest-on-the-bonds#comment-19511 pete: "When the average person dies, if still holding some, they are passed on somehow and the average person still has D in bonds and D in government debt." But it matters *how* they are "passed on". Does one generation *give* them to the next generation, as a freebie? Or does it *sell* them to the next generation in exchange for (command over) real resources which the first generation consumes? This is a zombie idea. - Nick Rowe Thu, 11 Oct 2012 10:16:57 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/children-and-grandchilden-do-not-pay-for-budget-deficits-they-get-interest-on-the-bonds#comment-19506 Ignoring overseas, and ignoring Fed holdings and probably some others, the average person owes D, and on the flip side the average person has D in bonds, either directly or through bank shares or company cash accounts or mutual funds. Makes no difference. When the average person dies, if still holding some, they are passed on somehow and the average person still has D in bonds and D in government debt. The bonds held do not disappear and their claim on future taxes does not disappear. Government bonds are not certainly not net social wealth. If we were all representative people, i.e., a Lake Wobegon world, then all the average people could burn their bonds and there would be no bonds, and no debts. Nada. - pete Thu, 11 Oct 2012 09:27:01 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/children-and-grandchilden-do-not-pay-for-budget-deficits-they-get-interest-on-the-bonds#comment-19505 Dean: "In other words, if the deficit hawks were honest in their claims, they would not saying that we are passing on a debt XXX hundred trillion to our children and grandchildren, they would be saying that the economy is X percent smaller today because we ran large deficits." I am not a deficit hawk, but that statement isn't correct. Even in a (hypothetical) world where investment and the size of the economy were invariant with respect to the current deficit, there is still an intergenerational transfer (unless that intergeneration transfer is reversed by increased voluntary bequests as in Barro-Ricardian Equivalence). This is a standard property of OverLapping Generations economies (provided the "No-Ponzi condition" is satisfied so the intertemporal government budget constraint holds, which it may or may not do). - Nick Rowe Thu, 11 Oct 2012 07:53:21 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/children-and-grandchilden-do-not-pay-for-budget-deficits-they-get-interest-on-the-bonds#comment-19504 Folks, there are two points here. First, the idea of the debt being somehow a burden implies that it pulls away resources that otherwise would have generated wealth in the future. In the context of an economy with unemployed resources (e.g. today's economy) there is no reason to think that the deficits of today are pulling one dollar away from investment from the future. In fact, it is almost certainly the opposite. we are investing more because of the demand created by the deficit. We also keep parents employed so that they kids can enjoy a stable upbringing -- a huge benefit for the future. The other part of the story is that even if we did think that borrowing is somehow pulling away resources from investment, the debt is not the measure of the size of the drain. The measure would be the weakness of the economy relative to some counter-factual. In other words, if the deficit hawks were honest in their claims, they would not saying that we are passing on a debt XXX hundred trillion to our children and grandchildren, they would be saying that the economy is X percent smaller today because we ran large deficits. However, that story would probably not sound too impressive or too plausible so instead we get the nonsense about XXX hundred trillion dollars of debt. - Dean Thu, 11 Oct 2012 07:22:53 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/children-and-grandchilden-do-not-pay-for-budget-deficits-they-get-interest-on-the-bonds#comment-19503 means testing, raising the retirement age, increasing the tax rate or the income covered, while keeping benefits constant, all of these are legitimately on the table, but will definitely be "unfair" to many 30 and 40 year olds who have been "contributing" for 15 to 20 years. sorry, no contract, no guarantee...no tickee no laundry. - pete Thu, 11 Oct 2012 06:20:28 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/children-and-grandchilden-do-not-pay-for-budget-deficits-they-get-interest-on-the-bonds#comment-19501 Essentially, Ricardian believes in rational individuals who can figure all this out. Debt per se does not affect interest rates, only spending on real goods and services might. Most government spending now is just transfers. Hence taking a dollar from Pete to pay Liberal. No effect on the economy there. On the other hand, hiring somebody to build a road takes an individual out of the labor market and moves resources to the road building. A real impact, and in the worst case the road goes nowhere or increases our energy use. - pete Thu, 11 Oct 2012 05:02:56 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/children-and-grandchilden-do-not-pay-for-budget-deficits-they-get-interest-on-the-bonds#comment-19497 No new programs in 2009??? Dean, did you forget HERA, that cost a trillion... If the debts of the past four years were used to build bridges roads and other infrastructure I might agree with you that future generations would have something to show for it. But the money was spent on food stamps and unemployment. There are no bridges, just debt. And yes, Americans will end up owning a chunk of this debt. But look what they get for it. A negative yield versus inflation. Owning the debt is the dumbest thing an investor could do. And Dean is happy to stick it to all that save. Dean is trying to sell the idea that SS is not an inter generational wealth transfer.Dean is selling smoke with this talk. SS most certainly is a an inter-generational transfer of wealth. If you are under 55 you should not support Dean and his thinking. He will stick you with the bill for the Baby Boomers, and leave you with an empty till. - bkrasting Thu, 11 Oct 2012 00:04:48 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/children-and-grandchilden-do-not-pay-for-budget-deficits-they-get-interest-on-the-bonds#comment-19496 Dean: "A moment's reflection shows why the debt is not a measure of inter-generational equity. At some point everyone alive today will be dead. At that point, the bonds that comprise the debt will be held entirely by our children or grandchildren. The debt will be an asset for the members of future generations that hold these bonds." But, unless you believe in Ricardian Equivalence where we *give* our children and grandchildren those bonds, they had to *pay for* those bonds. Whether they were *given* or *paid for* those bonds obviously makes a very big difference to intergenerational equity and the lifetime income of future cohorts. Yes, if the bonds are issued e.g. to pay for schools, then the benefits of those schools would be an asset for future generations that would offset the burden of the debt. But you can't ignore that burden of the debt. The "We owe it to ourselves" view is a zombie idea. See my old post that Timothy links to in the comment above. - Nick Rowe Wed, 10 Oct 2012 23:46:16 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/children-and-grandchilden-do-not-pay-for-budget-deficits-they-get-interest-on-the-bonds#comment-19495 http://worthwhile.typepad.com/worthwhile_canadian_initi/2011/12/debt-is-too-a-burden-on-our-children-unless-you-believe-in-ricardian-equivalence.html [quote]Sorry, but that's just plain wrong. The economically illiterate rube who thinks that the national debt is a burden on our children or grandchildren is basically right. It's the exact opposite of "especially nonsensical". Unless you believe in Ricardian Equivalence.[/quote] Does Dean Baker believe in Ricardian Equivalence? - Timothy Wed, 10 Oct 2012 23:21:01 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/children-and-grandchilden-do-not-pay-for-budget-deficits-they-get-interest-on-the-bonds#comment-19494 Is this also true for Greek grandchildren? - Aaron Stephanic Wed, 10 Oct 2012 21:36:15 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/children-and-grandchilden-do-not-pay-for-budget-deficits-they-get-interest-on-the-bonds#comment-19490 Dean, I am with you most of the above but... [quote]As a generational matter, we pass a whole economy, society and environment to our children. Unless we have given them a really bad education, they would be crazy to opt for a government with a lower national debt in exchange for a weaker economy, a worse infrastructure or more damaged environment.[/quote] Infrastructure and environment combined are tiny parts of the federal budget! [quote]Of course the wealthy paid for the government bonds they own, so they have a strong argument that they should get the interest. Similarly, retirees paid for their Social Security benefits. [/quote] No one paid for Social Security benefits or medicare, They were taxed but that is different they were not promised anything specific. As proof the program has been changed already. It would be very sensible to pay SS out equally to all retirees regardless of how much they made in their worklife. Like pay everyone over 65 $700/month. The current deficits are not a problem but Medicare could be a problem in teh cost is not curved and spending is not cut elsewhere like by paying everyone on SS the same amount. - Floccina Wed, 10 Oct 2012 12:12:52 +0100