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Debt is worth it if you think your economy is going to grow in the future. It multiplies growth of an economy. Unfortunately, this multiplier is a double edged

by j7ake 7y ago

Debt is worth it if you think your economy is going to grow in the future. It multiplies growth of an economy. Unfortunately, this multiplier is a double edged sword, during times of shrinkage. Most modern economies have done well with debt since WW2 because the economy has been growing on average. During times of economic expansion, countries who don't put on more debt get left behind during the boom. The bust hurts those who took more risks, but it seems like on average it has worked out well for the debt takers in the last few generations.

mac01021 7y ago
Debt that must be repaid by a future generation (or just by other people under a different administration) will _always_ be worth it to the borrower. This truth can lead to frivolous borrowing that does not in the least benefit those who must pay back the debt. At least in theory. In practice, I guess things seem to be pretty ok for Japan in spite of their mountain of debt and shrinking population?
- atq2119 7y ago
  The thinking about debt being repaid by a future generation is deeply misleading because government debt is an asset to the private sector and those treasury bills are largely owned by US citizens (directly or indirectly, e.g. via pension funds). So it's not that the debt has to be repaid by a future generation. Rather, the debt causes the government to indirectly cause transfer payments among the future generation, from those who don't own US treasuries to those who do. Put differently, the debt is a vehicle for perpetuating the current social stratification (who's rich and who's poor) into future generations. If you're genuinely and honestly worried about the effect that the debt has on future generations, then your answer has to be some combination of (a) wealth tax and (b) moving the country's pension systems away from asset-backed pensions towards pay-as-you-go / transfer systems. (Though presumably combining this with a socially owned social wealth fund would work as well.)
  - mac01021 7y ago
    Thank you for this. I don't think you've told the whole story here - for example, when it comes time for the government to pay the future debt they can do it by raising taxes on one part of the population or the other, or simply by printing money (leading to inflation) and not all of those solutions work out the same way for any given person. Even so, you've shown me a more sophisticated way to think about this issue and I'll surely end up having different, better founded opinions as a result.
    - nostrademons 7y ago
      Inflation is itself a form of transfer payment - from creditors to debtors, and from people in markets with no pricing power (high competition) to people with high pricing power (no competition), and from cash-holders to asset-holders. You're right that this has very different winners & losers than just paying interest on the debt, but it's the same general principle: government debt and money itself are both fictions, so the only way they can influence aggregate welfare is if they disincentivize productive work.
  - thunderbong 7y ago
    Thank you. That is indeed insightful. I've also held the same opinion as the parent comment and this helps me understand the intricacies of economics a little better
  - mac01021 7y ago
    My thanks in the sibling to this comment still stand. However, some of my original concern stands too. To quote myself: "Debt that must be repaid by a future generation [...] will _always_ be worth it to the borrower." The concern is that the public debt may tend to balloon to a point where the only means to service that debt involves hyperinflation and then the nation faces a choice between economic meltdown due to catastrophic inflation or economic meltdown due to defaulting on its debt. Or maybe that can be avoided if people muster the will to enact some kind of crazy austerity measures in the 11th hour but that could be awful too. A wealth tax can ensure that everyone is just about equally bad at surviving the ensuing chaos rather than having a few elites who make out somewhat better than everyone else when it all goes down. But it won't avert the chaos altogether, will it? Is this concern totally ill founded?

by j7ake 7y ago

mac01021 7y ago

Debt that must be repaid by a future generation (or just by other people under a different administration) will _always_ be worth it to the borrower. This truth can lead to frivolous borrowing that does not in the least benefit those who must pay back the debt. At least in theory. In practice, I guess things seem to be pretty ok for Japan in spite of their mountain of debt and shrinking population?

atq2119 7y ago
The thinking about debt being repaid by a future generation is deeply misleading because government debt is an asset to the private sector and those treasury bills are largely owned by US citizens (directly or indirectly, e.g. via pension funds). So it's not that the debt has to be repaid by a future generation. Rather, the debt causes the government to indirectly cause transfer payments among the future generation, from those who don't own US treasuries to those who do. Put differently, the debt is a vehicle for perpetuating the current social stratification (who's rich and who's poor) into future generations. If you're genuinely and honestly worried about the effect that the debt has on future generations, then your answer has to be some combination of (a) wealth tax and (b) moving the country's pension systems away from asset-backed pensions towards pay-as-you-go / transfer systems. (Though presumably combining this with a socially owned social wealth fund would work as well.)
- mac01021 7y ago
  Thank you for this. I don't think you've told the whole story here - for example, when it comes time for the government to pay the future debt they can do it by raising taxes on one part of the population or the other, or simply by printing money (leading to inflation) and not all of those solutions work out the same way for any given person. Even so, you've shown me a more sophisticated way to think about this issue and I'll surely end up having different, better founded opinions as a result.
  - nostrademons 7y ago
    Inflation is itself a form of transfer payment - from creditors to debtors, and from people in markets with no pricing power (high competition) to people with high pricing power (no competition), and from cash-holders to asset-holders. You're right that this has very different winners & losers than just paying interest on the debt, but it's the same general principle: government debt and money itself are both fictions, so the only way they can influence aggregate welfare is if they disincentivize productive work.
- thunderbong 7y ago
  Thank you. That is indeed insightful. I've also held the same opinion as the parent comment and this helps me understand the intricacies of economics a little better
- mac01021 7y ago
  My thanks in the sibling to this comment still stand. However, some of my original concern stands too. To quote myself: "Debt that must be repaid by a future generation [...] will _always_ be worth it to the borrower." The concern is that the public debt may tend to balloon to a point where the only means to service that debt involves hyperinflation and then the nation faces a choice between economic meltdown due to catastrophic inflation or economic meltdown due to defaulting on its debt. Or maybe that can be avoided if people muster the will to enact some kind of crazy austerity measures in the 11th hour but that could be awful too. A wealth tax can ensure that everyone is just about equally bad at surviving the ensuing chaos rather than having a few elites who make out somewhat better than everyone else when it all goes down. But it won't avert the chaos altogether, will it? Is this concern totally ill founded?