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Friday, October 12, 2012

The Debt Battle Rejoined

It's back!

Here's is Noahopinion saying what I kept pointing out in round one of this debate:

"But see, here's the interesting thing about Rowe's model: the government doesn't need to use debt to impose this burden on the young. It can achieve exactly the same result with zero debt, just by taxing the young directly and spending on the old (i.e. a Social Security system with unsustainably large contributions). In Rowe's model, debt is just an accounting system that keeps track of how much consumption has been transferred from the young to the old. But the debt itself doesn't really matter; only the consumption transfer matters.

"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! Since we could do the something with taxes as we could with debt, as Kuehn and I repeatedly showed, it ain't the debt that is the issue. Krugman was right in the first place.

Thanks, Noahopinion!

8 comments:

  1. I think part of what was interesting about that whole thing was that it chopped up the usual battle lines. It's not every day that Landsburg and Krugman are arguing on the same side.

    And I can guarantee you, it made me nervous to be arguing against Rowe.

    It also seemed blatantly obvious to me by the phrasing of the initial claim that Krugman was talking about a given year's national income - which even Rowe and Murphy's models showed weren't affected.

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  2. "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."

    Bob Murphy's OLG models didn't actually even change the level of consumption in a given period. They just changed the distribution of the consumption so that people's lifetime utility was reduced.

    The point that they were making though was that the obligation to make the transfer was made in one period and affected utility in future periods. This seems different to me from the obvious truth that the govt can affect people's utility in the present by using taxes to distribute income in the same period.

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  3. I will sit this out since you have the power to poison me tomorrow, Gene.

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    Replies
    1. That is very funny, because I am serving this.

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  4. This is a bit like saying that guns don't kill people because you can also kill someone with a knife.

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    Replies
    1. No Blackadder, it's more like this:

      Someone claims that guns are a way for old people to kill young people. And we have shown that:

      1) Knives can be used instead; and
      2) Guns can just as easily be used for young people to kill old people.

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    2. No, better yet!

      Someone is smoking a cigarette while they shoot someone.

      People claim, "See, second hand smoke kills!"


      We have pointed out, "No, it is the shooting bit that kills people."

      1) If you do inter-generational transfers, BY WHATEVER MEANS, you can move wealth between generations.

      2) If you don't do inter-generational transfers, then government debt WILL NOT move wealth between generations.

      3) There is no reason government debt has to involve inter-generational transfers.

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  5. Actually, what this debate reminds me of is the whole debate over Say's Law and the possibility of a general glut. You can say that a general glut is impossible by talking about an underproduction of leisure or whatever, but that doesn't change the fact that the situation Malthus was talking about when he talked about the general glut is indeed possible.

    Similarly, when the guy on the street worries about the burden of debt we are passing on to our children, it is little comfort to tell him that the debt is harmless and it's just the extra taxes his kids will pay to retire the debt that will be a burden.

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