There is a big debate about the burden of debt faced by future generations.
Before they get too far down the rabbit hole, let’s all notice something about these models. The models they are using assume we’re at full employment, full productive capacity, or the government isn not able to impact these levels at all.
Here is Sumner:
“Suppose the public debt has no impact on current investment or current consumption, or the entire future path of consumption from now until the end of time. Would Nick be wrong? It seems that way, but not if you look closely.” [bold mine]
Here is Noah Smith:
Now let’s assume that the technology level, the labor force, and the amount of natural resources are all completely exogenous, so that the government cannot affect these things (this may not be realistic but we could always drop that assumption later) [Bold mine]
But we do not live in a world where the government spending does not impact the economy. We live in a world where the fiscal multiplier is greater than 1. We live in a world where when the government spends, the spending creates economic activity beyond the spending!
In short, this extra activity created by fiscal multipliers greater than 1 are FREE real world goods and services. FREE. Nobody is paying for them by forgoing current consumption. Nobody is shorting themselves today to save for tomorrow. Nobody is giving away some food they would have gladly consumed today so they might have food tomorrow.
This is true, even if our country ends its long run by paying off every issued bill, note, and bond to the penny before peacefully handing power to the new rulers.
The Samuleson 58 paper is flawed in this aspect. It does not make it 100% plain that when the real rate of interest is below the “natural rate” this means we have slack in the economy which can be exploited FOR FREE! FOR $%#@ FREE! It’s free stuff laying about – which explains why there is a huge demand for activity when this is true.
It’s so incredibly important to note the world they are using has full employment, full utilization of resources. This is the only way a transfer of wealth need to happen. Because if we’re giving something to the grandparents today, we can’t use it today. But if we’re not at full employment, not at full capacity, the extra stuff we’re getting by making more money is, in some real, non-negotiable sense, free and not a transfer of wealth.
It is locked up wealth which was never being used, locked up value being thrown away irrevocably with each passing day, trashed production we’ve been taking the sledgehammer of time and destroying machinery, peoples lives, and future wealth, simply because we as a society lack the ability to understand the meaning of a few simple, high school level algebra equations.
This is a transfer of wealth from the ether to the real world, and net a huge benefit to both generations.
This is the meaning of the economy demands bubbles.
Turns out that one post on a small blog isnt’ enough to have people see the light.