tag:blogger.com,1999:blog-4900303239154048192.post2526613203539907979..comments2024-03-06T06:34:42.881-05:00Comments on EconoSpeak: Do Fiscal Deficits Steal from Future Generations?Unknownnoreply@blogger.comBlogger10125tag:blogger.com,1999:blog-4900303239154048192.post-23691890247526687892015-02-19T01:15:00.289-05:002015-02-19T01:15:00.289-05:00It is possible to abstract the issue from inter-cl...It is possible to abstract the issue from inter-class transfers.<br />The first key point is that most production is consumed in more or less the same time period as it was produced. This is true of almost all services, and services are a pretty huge part of a modern economy. It's also true of anything with a short shelf-life, like most food. For such goods and services, the people of a future year will produce and consume them, and we from the past can't affect their choices. If the people of the future year don't like the distribution of income we have left them, they can change that distribution through taxes and redistribution. We eat what we grow and they will eat what they grow. <br />Now, some goods last for years. These goods can generate future consumption issues. If we, this year, fail to build enough cars, there may be a shortage of ten-year-old cars ten years down the road. You could say that by consuming services and vegetables instead of cars, we have stolen used cars from our children. I doubt that potential shortages of semi-durables, however, are that much of a problem. <br />Where you do run into trouble is if the present generation does not build enough structures, roads and bridges, sewage systems---and does not invest enough in capital assets. Such failures will reduce our children's productivity and indeed make them poorer. But here's the rub. Those who howl about stealing from our children typically recommend that we abstain from this dirty deed---<b>by slashing investment!</b> The government in particular must not run a budget deficit, to build infrastructure or for any other purpose. And, of course, the deficiency in aggregate demand that results from the austerity demanded by those who would "protect our children" is doing more damage to future productivity and future wealth than anything else imaginable. It is those who cry about stealing from our children, therefore, who are ther true thieves.gnscotthttps://www.blogger.com/profile/03445897799197538488noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-66978423062013926602015-02-12T19:27:43.121-05:002015-02-12T19:27:43.121-05:00Debt is an accounting wash if assets=liabilities.
...Debt is an accounting wash if assets=liabilities.<br />This is the case if there are 2 distinct parties, and the debt is actually paid back - the liability part.<br />With over $18 trillion of public debt, and no principal or even interest paid back in years, someone please tell me " Where does the liabulity part come into play if it is not paid back?<br />Don LevitDon Levithttps://www.blogger.com/profile/02497731736648561272noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-46406691923559405102015-02-11T16:42:19.746-05:002015-02-11T16:42:19.746-05:00"(Hmm do the Stamp Acts and the Boston Tea Pa..."(Hmm do the Stamp Acts and the Boston Tea Party come to mind here?)"<br /><br />I'm afraid the slogan "no taxation without representation" has been abbreviated to "no taxation" notwithstanding that the short form has come to mean "no taxation for those who can buy the most representation."Sandwichmanhttps://www.blogger.com/profile/11159060882083015637noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-7156156517906058172015-02-11T15:11:13.932-05:002015-02-11T15:11:13.932-05:00Plus both sides are simply omitting huge factors.
...Plus both sides are simply omitting huge factors.<br /><br />On the Rowe side the continuing economic utility of past investments. After all Hoover Dam is still generating electricity.<br /><br />On the Krugman side the factor that we are not just talking about presence or absence of intergenerational transfer but also he transfers between economic classes. Today's bond issuances (debt) are certainly tomorrows wealth (assets) but thtat doesn't mean that tommorrow's asset holdes are symmetric with tomorrow's debtors. The incidence of the pleasure of the big party we throw today may well not match the incidence of drudgery in cleaning up. In the future bond holders collect and income tax payers pay. And only if the shares of collection and payment are equal is their any symmetry at all.<br /><br />And agruablt there is not that symmetry now, and there certainly wouldn't be if we institutes anything like the Ryan Path to Prosperity that proposes to remove ALL tax on returns from capital, including interest and redemptions of bonds. Under the Ryan model the wealthy of today would grab much of the benefit of the party thrown by debt finance (especially holders of defense stocks) but to the extent that their wealth came from returns on capital be exempt from the repayment even as they were themselves collecting those same payments.<br /><br />To see how this worked historically you could examine the Sinking Funds the British used to finance the French and Napoleanic wars. The rich got ever richer by lending money at high rates to the government (the Funds) even as the repayment was mostly shifted to consumption taxes. (Hmm do the Stamp Acts and the Boston Tea Party come to mind here?)<br /><br />So pardon my language but screw these intergenerational calculations that don't take into account the varying incidence of the cash flows to and from the borrowing. Itself largely driven by the progressivity or not and capital share or labor share of the resulting taxes.Anonymoushttps://www.blogger.com/profile/04849952583072660993noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-32771020380551483822015-02-11T00:10:58.297-05:002015-02-11T00:10:58.297-05:00Nick Rowe seems (from his blog) a nice person, and...Nick Rowe seems (from his blog) a nice person, and is certainly not unintelligent. Yet he cannot escape a compulsion to see the world in terms of very simple models. The patent inadequacy of this procedure never registers, not even as the flickers of unease evident in some of Brad DeLong's musings.Peter Thttps://www.blogger.com/profile/13289172253358199028noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-36742512518392005252015-02-10T13:50:18.863-05:002015-02-10T13:50:18.863-05:00Yes, Bruce, but ABSTRACTING from reality and uncer...Yes, Bruce, but ABSTRACTING from reality and uncertainty about the future...Sandwichmanhttps://www.blogger.com/profile/11159060882083015637noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-47654453421614686132015-02-10T12:14:04.173-05:002015-02-10T12:14:04.173-05:00Shall we start with Adam Smith? "The annual l...Shall we start with Adam Smith? "The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniencies of life which it annually consumes, . . . " Not the labor theory of value, which some find in this analytic convenience, but the simple truth that we have only the present moment in which to produce or consume. The future is not ours to see. Or burden.<br />.<br />We cannot eat today apples, which are yet to be produced. Nor can the printing presses at the Treasury Department manufacture future apples.<br />.<br />What the Treasury can print are debt obligations -- pieces of paper and, in nominal terms, these always demonstrate a perfect Ricardian equivalence: the bonds start out with a nominal worth exactly matching the future tax obligation, which funds them.<br />.<br />We could take into account the future effects on future productivity of whatever investment is funded by borrowing in the present, but the burdens of that investment, if any, are on the present, as consumption is foregone. More relevant to the calculation of putative future burdens would be the utility of a circulating financial capital: the usefulness of a marketable debt of certain nominal value as a reference and anchor for a financial system. The usefulness, we might suppose, would depend on a stable relation of the nominal value thru the sequence of time to claims on production and resources as they become available in the future sequence of present moments. That stable relation, if it is to obtain, would be the product of a continuing management of currency and marketable debt -- monetary policy by a central bank, in other words -- balanced against the fiscal policy and capacity of a government managing the division of production and consumption in the current present moment.<br />.<br />To support the thesis of a future "burden" of debt incurred in the management of present consumption and production, it is necessary to conceive of some constraint placed on that future management of future production and consumption. The usual conservative trope is to insist that the debt will have to be "repaid" in the future, with the implication that future consumption will be reduced. But, this trope introduces an impossibility: nature does not permit us to eat future apples today, despite Nick's feverish fantasies to the contrary. If at some point, the debt is "repaid", it will be repaid, as it was issued -- in nominal terms by a fiscal authority. Ricardian equivalence always holds in nominal terms: bondholders have "saved" in anticipation of the tax obligation by taking possession of the bonds, and the repayment of the debt will be accomplished by returning the bonds from whence they came. <br />.<br />Of course, we may suppose that those taxed will not be identical with those holding the bonds in that future period of repayment, and there will be distributional implications, as claims on present consumption are transferred to obtain the bonds. What that balance will be is a matter of future, not present decision, so it cannot be said to be entailed with the force of determinative logical necessity by the decision, in the present moment, to manage consumption and production by issuing public (or private!) debt. The future will manage itself, and the claim of "burden" requires identifying a constraint placed on future decision-makers by the printing of convenient fictions (aka bonds) in the present.<br />.<br />I will not say that there are not such constraints implied by the commitments inherent in those fictions, though I will assert that the utility of marketable debt means that the issuing of debt now can also add to the capacity of the future to manage itself. It is not a foregone conclusion that debt will prove itself a "burden" reducing future consumption or production. But, we will not find those constraints, burdens or capacities, or understand them, with intergenerational transfer models.Bruce Wilderhttps://www.blogger.com/profile/09631065564839959376noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-22713257663096676092015-02-10T01:29:31.783-05:002015-02-10T01:29:31.783-05:00"A lot of economic wisdom boils down to knowi..."A lot of economic wisdom boils down to knowing whether you’re dealing with a special case or a general one."<br /><br />can be shortened to:<br /><br />"A lot of economic wisdom boils down to fudge."Sandwichmanhttps://www.blogger.com/profile/11159060882083015637noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-60654016599889461352015-02-10T01:12:41.142-05:002015-02-10T01:12:41.142-05:00Though whether Paul Krugman would say that Barro-R...Though whether Paul Krugman would say that Barro-Ricardian Equivalence is basically right.....is another question!<br /><br />It's tough to have it both ways, where debt is no burden, and Barro-Ricardian equivalence is totally wrong.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-21911498094557924092015-02-10T01:05:57.810-05:002015-02-10T01:05:57.810-05:00Peter: I basically agree. If bequests increase by ...Peter: I basically agree. If bequests increase by the same amount as the debt (as they would under Barro-Ricardian Equivalence), there is no burden on future generations. But if they don't increase, then there is a burden (unless it's offset by increased government investments etc., or we live in a Samuelson 58 world where r < g so the government can run a sustainable Ponzi scheme and never raise taxes to service the debt).Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.com