(1) The interviewer’s hysterical reference to the explosion of debt (“50,000 every second” – which I am not sure is correct or not) is misleading: government debt might be rising, but so is GDP, and it is net government debt as a percentage of GDP that is a better measure of its burden.In summary, the tax burden on most individuals from repayment of future US government debt is likely to be small, given that the US has a progressive tax system, and most debt is rolled over. Other debt is bought back by the central bank – which does not even involve taxes at all.
(2) The notion of present generations “living at the expense of future generations” is utter nonsense. Any future generation cannot send real goods and services back in time, and our wealth today is dependent on the real goods and services produced, owned and consumed today, not in the future. The repayment of future government debt comes from three sources:(i) Central bank open market operations. This does not even involve taxpayers’ money at all: money used to pay back debt in this way is simply created by central banks.(3) The only really serious burden associated with government debt is that part of the debt owed to foreigners (as Abba Lerner argued). But even here the US is in a unique position: the US dollar is the world’s reserve currency and US dollars can just as easily be used to buy other nation’s goods and services, rather than just US goods and assets.
(ii) The government has the power to roll over much of its debt. As long as people keep purchasing the debt, there’s no problem.
(iii) The government’s repayment might be from current tax revenues. But, with expanding GDP, the government has access to tax receipts which grow over time, which effectively means that the burden of interest servicing and paying back debt falls as the population rises, GDP grows and tax revenues rise. Since the US has a progressive tax system the “individual” burden of government debt repayment differs markedly depending on income anyway.
The future “individual” burden of government debt is simply a redistribution of money at a future time point or period, and, if the money is spent, a redistribution of real goods, services or assets within the society at some future point in time: it cannot be a robbery by present generations of future wealth, because there is no way that future, real goods and services can be magically transported back in time to today.
(4) Underlying this obsession with government debt is the completely mistaken and fallacious analogy with private debt. In reality, government debt is different from private debt for these reasons:(i) the government is the monopoly issuer of its own currency; no private individual can print money;(5) If anything, it is the present generation and its incompetent unwillingness to restore strong GDP growth and high employment that robs future generations of a stronger economy and greater wealth, by permanent loss of the higher level of output and real assets we would enjoy if GDP was hitting its potential.
(ii) the government has the power to roll over much of its debt, unlike private individuals;
(iii) the government’s central bank has the power to control interest rates and bond yields, if necessary.
(iv) the government has access to tax receipts which grow over time, which can effectively mean that the cost of interest servicing on government debt falls as the population rises.
Above all, the burden of taxes for future generations to repay debt or interest on debt would be much reduced if the right macroeconomic policies were restored.
In fact, the truth is that vicious deflationary policies and budget balancing is what will really rob future generations of wealth: it will rob them of the larger economy they would have had in the future from a larger base of GDP and capital stock today.
Above all, destroying present employment, income and leaving millions unemployed will probably prevent potential parents from having children that they might wish to have, because of present poor job prospects, low income, reduced growth and economic stagnation: thus the wages of austerity and budget balancing will prevent some members of future generations from even being born. That is the real crime against future generations.
I have to laugh every time I hear this “robbing future generations” balderdash. The extreme proponents of free market economics would rob potential members of future generations of their very existence.
I highly recommend these classic articles by Abba Lerner on the issue of government debt:
Lerner, A. P. 1943. “Functional Finance and the Federal Debt,” Social Research 10: 38–51.
Lerner, A. P. 1947. “Money as a Creature of the State,” American Economic Review 37.2: 312–317.