Murphy Kicks a Rock
Bob Murphy thinks it is a terrible time for the United States government to borrow more. At one point in this essay, Bob goes totally off the rails:
"This is because government debt involves present citizens living at the expense of future taxpayers..."
Now, in the endless Internet debate on whether debt government debt "is" a burden on future generations, again and again, all I have ever seen the proponents of "yes" show with their models is that, used in a certain way, government debt can be a burden on future generations. No one has ever shown that it necessarily is such a burden, which seems to be the claim Bob is making. With reference to Murphy's models in particular, Daniel Kuehn and I repeatedly duplicated any inter-generational transfer he modeled in a way that didn't use debt at all. As Noahopinion put it, "So I think this tells us something important about debt in the real world. What matters is not debt, it's intertemporal choice. The important question is not how much debt we rack up, but whether we want to move consumption from the future into the present or from the present into the future."
Exactly. In particular, in the current situation, we could easily do an inter-generational transfer from ourselves to future generations simply by borrowing now, while costs are low, and spending the money on infrastructure projects that we know will need to be done over the next decade or two anyway. We would cut our current consumption today to get these projects done now, and future generations could consume more than otherwise because they won't have to repair, let us say, the George Washington Bridge in "their" time.
Murphy might protest, "But come on, Gene, you know if the government borrows more, it's just going to fritter away the money on current consumption!"
Maybe so. But that illustrates Noahopinion's point, doesn't it: "What matters is not debt, it's intertemporal choice."
"This is because government debt involves present citizens living at the expense of future taxpayers..."
Now, in the endless Internet debate on whether debt government debt "is" a burden on future generations, again and again, all I have ever seen the proponents of "yes" show with their models is that, used in a certain way, government debt can be a burden on future generations. No one has ever shown that it necessarily is such a burden, which seems to be the claim Bob is making. With reference to Murphy's models in particular, Daniel Kuehn and I repeatedly duplicated any inter-generational transfer he modeled in a way that didn't use debt at all. As Noahopinion put it, "So I think this tells us something important about debt in the real world. What matters is not debt, it's intertemporal choice. The important question is not how much debt we rack up, but whether we want to move consumption from the future into the present or from the present into the future."
Exactly. In particular, in the current situation, we could easily do an inter-generational transfer from ourselves to future generations simply by borrowing now, while costs are low, and spending the money on infrastructure projects that we know will need to be done over the next decade or two anyway. We would cut our current consumption today to get these projects done now, and future generations could consume more than otherwise because they won't have to repair, let us say, the George Washington Bridge in "their" time.
Murphy might protest, "But come on, Gene, you know if the government borrows more, it's just going to fritter away the money on current consumption!"
Maybe so. But that illustrates Noahopinion's point, doesn't it: "What matters is not debt, it's intertemporal choice."
This is goofy Gene. Using your rhetorical approach, it's not "intertemporal choice" at all. Suppose a tornado comes through and moves capital goods around in just the right way, to simulate what we would have chosen to do, in your scenario. Then we get the same flow of utility etc., but there was no intertemporal choice involved.
ReplyDeleteYes, Bob, and after writing this, I chose to go eat at a diner. It *could* have been the case that instead, a tornado picked me up and blew me to the diner. Then, there would have been no choice involved.
DeleteI'm not quite getting how this is relevant. Are you announcing that you have abandoned praxeology, because the same results always *might* have come about some different way?
Gene Callahan wrote:
DeleteI'm not quite getting how this is relevant. Are you announcing that you have abandoned praxeology, because the same results always *might* have come about some different way?
Gene my friend, I was merely doing to you, what you did to "dispose" of my claim that government debt impoverishes future taxpayers. You thought you blew up that claim by pointing out an alternate way to impoverish future taxpayers.
So if your argument works, then MY arguments similarly works to knock out your attempt to summarize the principle as "not debt, but intertemporal choice."
And then, capable of only seeing only one move in your rearview mirror, you pounce on the silliness of my claim.
Right Gene, it was absurd. Hence, my attempt at a reductio ad absurdum of your original post, is a success.
"You thought you blew up that claim by pointing out an alternate way to impoverish future taxpayers."
DeleteHuh? No, I pointed out that debt could be used to enrich future taxpayers!
And Gene, I'm not trying to be a jerk, but you and Daniel repeatedly said things in that debate that were demonstrably false. So it's weird for you to be sighing and acting like you have to take me on your lap and explain it once again for me.
ReplyDeleteLet me make my position less rudely: Other things equal, paying for government programs via debt instead of via taxation allows the present generation to benefit at the expense of future taxpayers. If the government is going to spend $$ today building colleges that will train kids in 50 years, then yes they might like that. But I'm saying if the government pays for that investment spending by taxing today's taxpayers, then the grandkids will benefit more than if they themselves effectively pay for the investment because it was financed via deficits.
ReplyDeleteIt's also true you can get into Ricardian Equivalence stuff, but then that too isn't holding other things equal. All you, Landsburg, Daniel, and Noah are doing, is pointing out that the *prima facie harm caused by government financing via deficits* can sometimes be offset by other factors.
An analogy that I think is great and you presumably will think is dumb: I say, "Shooting someone in the leg will make him worse off." Then you say, "No, it's not really shooting him per se. After all, I can stab someone in the leg too, so since I've mimicked your outcome, it's clear that shooting per se isn't the issue. In fact, what if I shoot a guy in the leg, then the judge orders me to pay him $100,000, and it turns out he was about to lose his house? He might actually be *glad* I shot him! So stop being so dogmatic Bob about the connection between shooting someone and hurting him."
Yes, I do think the analogy is bad. The right one: You are saying "Having guns kills people." And we say, "No, only shooting them at people kills people." It is *your* models that don't hold other things equal, because they are carefully designed to include inter-generational transfers. That is why the models require overlapping generations and no inheritance.
DeleteI think that that Gene is saying is that the current generation can (if it chooses) plan its activities so it will benefit future generations ( by investing in infrastructure that will last a long time etc) or alternatively it can act is such a way that maximizes its own lifetime's consumption and leaves future generation relatively worse off as a result.
ReplyDeleteThis is clearly true.
Bob's I think is talking about something else - how even in an endowment economy (where the concept of investment for the future is absent) one generation can benefit at the expense of a future generation. This scenario (Bob has stated) depends upon OLG. The OLG models Bob uses have always been ones that start of with an inbuilt assumption that any change in endowment distribution will lead to someone losing out. It is quite easy to construct alternative OLG models (with different assumptions) that demonstrate that even in endowment economies inter-generational transfers are beneficial (such as when there are old people who cannot work).
So I think Gene and Bob are talking about different things. I think Gene's point, based on inter-temporal choice , is much more significant in the real world than Bob's rather superficial point based on OLG. I have never understood why Bob, as an Austrian, takes the approach he does.
I am worried about contradicting a professional economist (and looking stupid doing so), but here is where I am not so sure about Professor Murphy's statement: "government debt involves present citizens living at the expense of future taxpayers".
ReplyDeleteWhether or not taxes are collected, government spending reduces the maximum possible private spending that can occur in the period, through higher interest rates and higher exchange rates if not from taxes. Applying this to a full employment economy, this means that public spending rises by reducing private spending IN THE PRESENT.
If so, in an economy, all the accounts balance, whether or not the increased spending comes from more debt. In the current period, private citizens today have already reduced their consumption to pay for higher government spending.
So why would it imply a greater burden on future taxpayers? The private spending of people today has already been limited, so there's no need to limit the private spending of people in the future.
Yes, Prateek, it implies no such thing.
DeleteAnd you needn't be fearful: Paul Krugman and Steve Landsburg are professional economists, too, and they got this right, just like you did.
Delete