Why Teaching History of Economic Thought Is Important, Abba Lerner Edition
So Abba Lerner understood the idea behind these OLG models back in 1961, and was unimpressed:
"MESSRS. Bowen, Davis, and Kopf have shown that the real burden of a project using up resources in the present can be shifted to future generations by internal borrowing, providing one defines 'generation' in a particular way. It is just as easy to prove that all politicians are economists or that all economists are dunces, provided one defines 'economist' in a particular way...
"But there is no reason for supposing that the President was trying to use any language other than English, and what the President said is simply wrong (in English), unless indeed all the economists (including Bowen et al., as well as J. M. Buchanan, who plays similar linguistic tricks) are absolutely wrong.
"The real issue, and it is an important one, between the economists and Mr. Eisenhower is not whether it is possible to shift a burden (either in the present or in the future) from some people to other people, but whether it is possible by internal borrowing to shift a real burden from the present generation, in the sense of the present economy as a whole, onto a future generation, in the sense of the future economy as a whole."* (Emphasis mine: this is what I keep saying the OLG models are actually showing.)
As the OLG models show, no, you can't do the latter. Lerner was right in the first place! He had seen through the "verbal trick" Rowe is touting as disproving Lerner's thesis five decades ago.
Vol. 43, No. 2 (May, 1961), pp. 139-141
Published by: The MIT Press
Stable URL: http://www.jstor.org/stable/1928663