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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 trut

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?
  - atq2119 7y ago
    Servicing the debt usually just means paying interest on it and rolling it over. That's not going to cause hyperinflation. One hypothetical scenario that goes into this direction though would be a severe supply shortage that drives prices up, and then wealthier folks (who are the holders of the debt) are able to price poorer folks out of the market. I don't think that in itself would give you hyperinflation though. Something else would have to happen as well,[0] and then the question is down to the nature of where this extreme supply shortage comes from. The most common cause of that kind of thing is war, and in war societies tend to suspend some aspects of the free market and introduce rationing to deal with these issues. [0] For example, consider the early Weimar republic where the government basically decided to cause hyperinflation because the alternative was to refuse payment of war reparations, and that wasn't politically feasible until the hyperinflation made it painfully obvious to everybody (both domestic and abroad) that Germany had to be allowed to at least partially default on those reparations. The point is, hyperinflation only happened because the government decided to keep injecting ever larger amounts of money into the economy -- but that can't be caused by existing debt. The existing debt is limited, so it could push on inflation for some time, but once that inflation has devalued the debt sufficiently, its "inflationary fuel" is spent. So I don't think existing debt can cause hyperinflation all by itself.

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?
- atq2119 7y ago
  Servicing the debt usually just means paying interest on it and rolling it over. That's not going to cause hyperinflation. One hypothetical scenario that goes into this direction though would be a severe supply shortage that drives prices up, and then wealthier folks (who are the holders of the debt) are able to price poorer folks out of the market. I don't think that in itself would give you hyperinflation though. Something else would have to happen as well,[0] and then the question is down to the nature of where this extreme supply shortage comes from. The most common cause of that kind of thing is war, and in war societies tend to suspend some aspects of the free market and introduce rationing to deal with these issues. [0] For example, consider the early Weimar republic where the government basically decided to cause hyperinflation because the alternative was to refuse payment of war reparations, and that wasn't politically feasible until the hyperinflation made it painfully obvious to everybody (both domestic and abroad) that Germany had to be allowed to at least partially default on those reparations. The point is, hyperinflation only happened because the government decided to keep injecting ever larger amounts of money into the economy -- but that can't be caused by existing debt. The existing debt is limited, so it could push on inflation for some time, but once that inflation has devalued the debt sufficiently, its "inflationary fuel" is spent. So I don't think existing debt can cause hyperinflation all by itself.