tag:blogger.com,1999:blog-2546602206734889307.post2748051138708694163..comments2024-03-28T04:29:22.717+00:00Comments on mainly macro: Is government debt a burden for future generations? or the paradox of the last generation.Mainly Macrohttp://www.blogger.com/profile/09984575852247982901noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-2546602206734889307.post-18946520313895170392014-12-12T14:08:32.403+00:002014-12-12T14:08:32.403+00:00Every business needs both a cash float and a stock...Every business needs both a cash float and a stock inventory. Families save some cash inventory for the future. Some families save billions in cash inventory in perpetuity. Since the entire private banking sector nets to zero on the balance sheet, the only source of this long term inventory on the population's balance sheets MUST be liabilities that the government willingly offers the population as a savings mechanism (and one that the government actively promotes).Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-20398090662890739872014-12-12T14:04:24.593+00:002014-12-12T14:04:24.593+00:00The only way to 'repay' the debt is for th...The only way to 'repay' the debt is for the population to return their entire savings of govt bonds. This is either A) clearly impossible or B) can be done if the bonds are converted back to cash which, although still a govt liability, isn't classed as 'debt'. The recent QE purchase of £375 billion bonds illustrates this. Either way there will always be a perpetual and rising nominal figure for govt liabilities issued. What you are calling for is exactly the same as the bank in Monopoly to try and get its money back off the board. The game will be over. Additionally, are you familiar with the idea that net savings of bonds is functionally identical to taxation? Until spent, the fact that it's a number sitting in an account is irrelevant.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-43519593952285634272012-01-16T01:36:36.443+00:002012-01-16T01:36:36.443+00:00Simon: Yep. You knew this stuff. Brad and Paul are...Simon: Yep. You knew this stuff. Brad and Paul are very very good. But the Doctrine of Pauline Infallibility has got to go. He screwed up here. Nobody's infallible. Stuff happens.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-41831895133196980252012-01-15T19:11:36.659+00:002012-01-15T19:11:36.659+00:00Nick: You are right. In an effort to make my point...Nick: You are right. In an effort to make my point that excess debt should be repaid, and therefore was a burden on future generations, I was too kind to the argument Krugman put forward. I wanted to avoid a discussion of how the return on debt compared to whatever other savings instrument would have been used, dynamic efficiency, Ricardian Equivalence and all that, because I thought it would distract from my basic point, but as a result what I wrote about the case where debt is not repaid was, as you put it, not quite right. (The annoying thing is that I know all this stuff, but perhaps as a result of following Brad's dictum about Paul, allowed myself to forget it.) However I don't think this alters the basic message of the post, which is that because of issues like tax distortions and crowding out, it is wrong to think that excess debt should persist forever, and so discussions of what happens if it does (and whether this is a burden or not) are of academic rather than policy interest.Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-35309163833687382192012-01-15T05:26:29.655+00:002012-01-15T05:26:29.655+00:00Simon: Unless I've misunderstood you, this isn...Simon: Unless I've misunderstood you, this isn't quite right.<br /><br />Take a standard OLG model. If the debt is a perpetuity, then all cohorts paying taxes to pay the interest on the debt are worse off, both in terms of present value of lifetime consumption, and in terms of lifetime utility. The intuition is that the promise of interest is needed to compensate them for postponing their consumption stream until later in life, and yet that interest income is at the same time taxed away (in a lump sum tax) from the representative agent.<br /><br />However, if the interest rate is permanently less than the growth rate, then the debt can be rolled over forever without ever increasing taxes, and only then is there no burden on future generations. Samuelson 58.<br /><br />If you aggregate across generations in a particular time period you miss seeing the burden. You instead need to aggregate across time periods to look at the present value of lifetime consumption (or lifetime utility) for each cohort.<br /><br />I'm afraid Paul Krugman missed seeing this.<br /><br />I don't know if you saw my recent posts on this.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-51648074023235958972012-01-14T15:55:09.677+00:002012-01-14T15:55:09.677+00:00I would say the paradox is resolved by noting that...I would say the paradox is resolved by noting that the money used to finance tax cuts has to come from the households who benefit from the tax cuts, so it's a wash. The households receive bonds but these are worthless because the interest earned is negated by the additional taxation the government levies to make the interest payments.econojonhttps://www.blogger.com/profile/11836028530972814027noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-58855116357073669112012-01-13T08:22:27.447+00:002012-01-13T08:22:27.447+00:00There are also these further complications to the ...There are also these further complications to the simplicity of your model:<br /><br />1. The recipient of the tax reduction and the lender to the State are not the same person.<br /><br />2. They may not even belong to the same social group, or, increasingly relevant today, one ethnic group e.g. the Europeans, say, may get the tax reduction disproportionately, while the Africans, say, may buy the gilts more<br /><br />3. And then there are the external buyers of Government bonds. My retort to Krugman: increasingly, whether we are American, Irish or British, Debt is money we owe to foreign investors.<br /><br />4. Even without these complications, your own observation on the micro-effects (on incentives and so on) is very important. I accept, of course, that you had to abstract away from those for the purpose of the point you wished to make.<br /><br />FERGUS O'ROURKE<br />http://www.irish-lawyer.comFERGUS O'ROURKEhttps://www.blogger.com/profile/04173061254158446240noreply@blogger.com