The deficit hawks have somehow managed to get it into the heads of many chatterers, and some voters, that their fetish about the federal government’s fiscal deficits and the resulting public debt has something to do with concern for the long term. This is, of course, contradicted by most of the other policies they support and oppose, most of all their opposition to taking out insurance against a climate catastrophe.
So let’s make an inventory of what those now alive will convey to those not yet, or only recently, born:
* Physical capital
- Factories, warehouses, and stores, and the equipment that runs them
- Housing stock
- Physical infrastructure: roads, railroads, the electric grid, telecommunications, ports, airports, dams, and canals.
* Human capital: the acquired productive capacities of individuals
- Literacy and numeracy
- Job-relevant knowledge and skill
- Work habits
* Science and technology: knowledge and know-how incorporated in:
- Books or other extra-somatic information storage
- The processes of work-groups
* Organizational capital: outfits that embody the capacity of doing more useful work than their physical assets and employees considered as individuals can account for. (Reflect on the difference between good and bad performance within organizational types: e.g., between the best and the worst big-city police force or school system.)
- Corporations
- Hospitals
- Public agencies
- Universities and non-university research centers
- Newspapers
- Voluntary organizations
* Aesthetic objects and traditions
- Literature
- Music
- Visual arts
- Performing arts
- Design
* Physical environment
- Climate
- Built environment
- Wilderness
- Resources (e.g., oil, water) still in the ground
* Cultural and social capital (traditions, institutions, and relationships)
- Rule of law
- Respect for republican principles
- Altruism and tolerance
- Business norms
- Norms of personal conduct (e.g., trust and trustworthiness)
- Well-functioning neighborhoods
You’ll note financial assets aren’t on the list. That’s not a mistake. Symbol is not substance.
A financial asset is an ownership claim on land, or on a productive physical or organizational asset, or it’s an obligation of some other person or institution. This generation will not leave the next generation either solvent or insolvent: by definition, the total mount of debt owed equals the total amount of debt held, and the value of the assets is independent of who holds the ownership claims.
As a group, the institutions within a single country (individuals, corporations, not-for-profits, and governments) can be net debtors or creditors with respect to the rest of the world. In that sense, one generation in one country can leave the next generation “in debt.” But it doesn’t matter at all whether the claims held abroad are claims on the government, claims on private parties, or claims on productive assets. What matters is the relationship between the net external debt and the capacity to produce value from which that debt can be serviced.
Fighting the war in Iraq left the next generation of Americans poorer by whatever the amount of real work and materials went into fighting that war and will go into dealing with the aftermath, or rather by the value of what could have been produced instead by those people using those materials. Bailing out the banks left the descendants of bankers, some bank shareholders, and some holders of bank-backed assets richer at the expense of the rest of us. But since the bailout didn’t consume any real assets, it didn’t leave the next generation either richer or poorer, except by preventing the effects on the real economy of an uncontrolled financial meltdown.
And yes, whoever wrote the Simpson-Bowles plan knows this. Whose interests are served by pretending not to know it is an interesting question. But it’s not the interest of the American people, either now or a generation from now.
You are missing the point, which is that all that nice stuff you mentioned will be ‘claimed’ by the chinese, and not ‘our’ kids.
Except that the larger the deficit, the more the government has to borrow money in the credit market that otherwise would have gone to creating (or replacing) physical capital (the first item on Mark’s list of things that do matter). This is the well-known crowding out argument, sufficiently well-known that I would have thought Mark knows this, but rather than ask whose interests it serves for him to pretend not to know it, I will run through the basics.
Much of the money used for America’s investments in physical (and parts of our human) capital come from our savings. For example, Ford borrows the money to build a new factory from a bank. If the government has to borrow that money instead to pay off its deficit for the year, then there is no new factory this year and less cars each of the following 25 years. Thus the future is negatively impacted by our deficit this year. Now one can argue that in unusual economic times like now, there is no crowding out as private companies don’t want to invest in the first place. One can also argue that what the goverment is spending the money on now is worth the loss of capital and thus future production (the deficit spending during WWII was certainly worth it). One can even argue that the government can spend money on physical capital in ways wiser than current private capital spending would be so a well-judged deficit can cause future growth (think of the Eisenhower highway spending of the 1950s). But one can not argue that current deficits will not, as a rule, affect future production Well, one can, but would be wrong.
To take the example that Mark uses, of course we are poorer now because of the deficit spending on the Iraq war. To the extent that the goverment borrowing for that war ‘crowded out’ private borrowing and investing in new factories and machines in 2005, we are producing less 5 years later because of it. If Mark wants to argue that crowding out is not important, let him explicitly make that argument rather than hoping no one will notice the connection between what is happening in the capital markets and the creation of physical capital.
In reflecting on the cost of keeping the tax cuts for the upper 2% which is estimated to cost about $700 billion over 10 years, we need to look back at the likely $700 billion that was saved by that 2% over the years the Bush tax cuts have been in existence. Where were those ‘tax savings’ invested : new plants, equipment, and new net hiring within the USA?? Believe as originally proposed by President Bush, these tax cuts were to have created a new 4.3 million new USA jobs. This is of course not what happend.
The upper 2% had their net taxes reduced/personal wealth increased by the likely $700 billion over the last 10 years and did not have to go borrow it in competition with that being borrowed for the wars.
If we could get quiet sanity and decency onto the mass media for about one week straight, I suspect we could get people to see that a good and constantly improving life for all humans is within our capabilities.
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Counterfactual,
You don’t seem to disagree with Mark, no matter how much you want to make it seem like you do. Mark never said anything that contradicts the idea of public borrowing crowding out private borrowing; that’s just your imagination talking. What he did say is that the cost to future generations can’t be measured by the amount of borrowing, whether public or private. What matters is the amount of real resources consumed. Again, there’s no distinction between public and private. The Iraq War consumed resources that are now gone; spending on infrastructure can increase the amount of capital passed on. In the same way, my spending money on things that I consume represent resources that can’t be passed on, while money I invest in capital can represent an increase in resources for the future.
If you want to make an argument about whether we are passing costs on to the next generation (which is in and of itself a false phrasing of the question), there is no relevant distinction between public and private debt or spending. The only relevant distinction is whether or not that spending improves the resource base or depletes it, and that’s entirely orthogonal to the public/private distinction.
The decision to pay sovereign debt is a political one. I think today’s American voter would default before substantially raising taxes anyway. Who would vote to suffer for Chinese creditors?
Am I actually supposed to take seriously your decision to leave debts off the list?
How is organizational capital any less symbolic? An organization can vanish in an instant, and we’re about as likely to leave most newspapers to the next generation, as our ancestors were to leave us the buggy whip companies. Indeed, some organizational ‘capital’ has a negative value, representing the persistence of dysfunctional organizations.
The housing stock, unless actually in use and maintained, has a remarkably short half-life. During the period I was looking for a house last year, a frightening percentage of the houses I checked out, (I’d say perhaps 10%, and a few drive bys since have assured me it’s gone up.) were ruins which would actually cost money to remove, in order to make the property as valuable as empty land. These were homes which were in decent shape just a couple of years earlier. Today’s housing stock is quite a bit smaller than 2008′s housing stock, I assure you, no matter what mortgage companies claiming those houses as ‘assets’ might chose to pretend.
Similar considerations apply to other forms of physical capital, with half-lives varying depending on durability, and the speed with which they become obsolete.
Human capital? We’re all too familiar with how mortal THAT is. The only human capital we pass on to the next generation is that which we embody in the next generation. So, the results of education do belong on the list.
And. So. Does. Debt. We leave it to the next generation, and while it *can* be repudiated, that is not without consequences.
“But since the bailout didn’t consume any real assets, it didn’t leave the next generation either richer or poorer, except by preventing the effects on the real economy of an uncontrolled financial meltdown.”
Yay! Mark is giving up on all desire to modify income distributions!
Brett,you’re amazing. You didn’t even bother to address the argument: that since for every debt there’s a debt-holder, “the next generation” cannot, by definition, be either a net creditor or a net debtor. Every generation inherits physical and cultural assets (and problems) from the previous generation. No generation “inherits debt.” Therefore, we should worry about substance and not symbol.
True that J. Michael Neal!
Mark, YOU’RE amazing: You understood that the next generation refereed to was OUR next generation, not some other country’s, not the entire world’s. If we put THIS nation into debt to ANOTHER nation, we damned well can pass onto OUR next generation a nasty choice of either laboring for others, or repudiating the debt, and losing the trust of the world for decades. That’s something we can pass on every bit as much as anything else on your selectively partial list.
Even if the debt was entirely held within this nation, your own concern for wealth distributions puts the lie to the notion that you wouldn’t care about the resulting redistribution of assets.
I doubt even you believe this line of BS about our going into debt not mattering to our children. You’ve just got a lot of things you find more important than not saddling them with debt.
Brett, “if the debt was entirely held within this nation”, what would that mean? It would mean that some Americans (Paris Hilton, say) would hold government bonds, and some Americans (your son, say) would have to pay taxes to service those bonds. Part of the reason the government has to borrow money from Paris Hilton is that some people (you, perhaps) want her income tax to stay at the Bush level, and want her to inherit her daddy’s inherited money tax free. Paris can use her tax savings to buy nice, safe government bonds with. She makes out great — she gets to LEND money to the government instead of paying the same money in taxes. The government makes out okay — it gets her money to spend (on your son’s education, perhaps) but has to pay interest on it. Your son, the future taxpayer who (from what you have said about yourself at ObWi for instance) is not due to inherit millions of dollars and (with all due respect) more likely to be middle-class than rich, effectively gets to pay interest to Paris Hilton’s kid all his life.
Mark’s point is that your son and Paris Hilton’s hypothetical kid are both in the next generation of Americans. One of them ends up poorer, the other richer, in the future because the government runs a deficit today. Their COMBINED future income is not changed by the fact that they inherit opposite sides of the federal debt. What’s affected is the distribution of future income between them. From all I’ve heard him say, Mark is NOT in favor of this upward “redistribution” from your kid to Paris Hilton’s. You, I’m not sure about.
-TP
You’ve left a well functioning government out of your inventory (although you include some of the requirements for maintaining such under cultural and social capital). It seems to me that government debt is one of the factors that goes into this; a government that has to pay out a large amount of money in debt service is somewhat less capable of accomplishing other things.
What I am arguing here is that the effect of debt left to the next generation is not zero. I am not arguing that we should be trying to fix the deficit right now. First, the effect on future generations may be pretty small. Second, I have no idea how to even begin to tackle the problem. We know from past experience that cutting spending and raising taxes won’t do the trick. Clinton tried that, and all his efforts were wiped out the next time the Republicans won an election.
Tony, our understanding of what leads to deficits differs. You seem to think it’s a matter of insufficient revenue, and that the budget would balance if we just fed the government more money. I think it’s a lack of spending discipline, and increasing revenue would just result in a deficit at higher spending levels.
So I don’t think this has squat to do with Paris Hilton. She’s not writing appropriation bills, last time I looked. Blaming this on her tax level is just an excuse to get more money to spend, on top of the borrowing.
Brett, at least we ought to be able to agree on two things: definitions, and arithmetic.
“Deficit” is the DIFFERENCE between spending and revenue. I know it, and I know YOU know it.
“Spending discipline” means NOT subsidizing your son’s education, or cancer research, or some poor kid’s lunch.
We should also be able to agree that neither you nor I are stupid enough to think that “Paris Hilton” writes appropriation bills. If you want to pretend that you don’t understand why I referred to “Paris Hilton” or “her kid” or “your son” as EXAMPLES, feel free. But you can’t fool me; I know you’re just pretending.
We do NOT have to agree on your assertion that any attempt to increase revenue will automatically lead to an even bigger increase in spending. We do not have to agree on it, because fairly recent history supplies empirical data. I know you don’t think there were “real” surpluses in Clinton’s 2nd term. But even so, even defining “real” YOUR way, spending grew LESS THAN revenue. We know this because Dubya his own self told us that we should cut taxes because government was collecting more of our money than it needed. We know this because Uncle Alan fretted in public that we were in real danger of paying off the national debt. Maybe you think both of them were lying bastards, but they were not the only ones saying things like that. I have a sneaking suspicion that even YOU were saying things like that, at the time.
At any rate, you seem adamant on one point: you would rather cut government spending on education for “your son” than raise taxes for “Paris Hilton”, because you hate government borrowing. That is a matter of taste, not logic, and I cannot gainsay anybody’s tastes. Some people like coffee, others like tea.
-TP
Brett, one more time: the problem you’re worried about is not specific to public debt. When American companies sell stock to foreign sovereign wealth funds or borrow from foreign banks, they’re transferring claims abroad, just as much as the government does when it borrows. Assuming - contrary to fact,I’m afraid - that you’re actually worried about something rather than just looking for an excuse to act on your prejudices, what you ought to be worried about is the balance of payments, not the government’s debt.
Kenneth, you’re right that at some level the public debt limits the capacity of the government to deal with problems. That was part of the motivation of George W. Bush and Alan Greenspan when they decided to put the government deeper in debt by cutting the taxes of the rich (only part of it, of course - they mostly wanted to make their rich and greedy friends happy, and not incidentally swell their own bank accounts) and why I’m all in favor of letting those cuts expire, and raising other taxes once we’re back near full employment. But I’m not inclined to cripple the capacity of the government to deal with problems now in order to prevent the possibility of having to do so in the future.
We can also leave the next generation negative social capital in the form of:
- grievances and embedded injustices
- guilt and regret
- false ideas.
So far we are doing rather well on these.
“The upper 2% had their net taxes reduced/personal wealth increased by the likely $700 billion over the last 10 years and did not have to go borrow it in competition with that being borrowed for the wars.”
As far as I can tell, Jim makes a very good point. How are conservatives not praying at the trickle-down altar? Because from where I sit, I see zero evidence of anything trickling down, and lots of evidence of waste and decadence.
“I know you don’t think there were “real” surpluses in Clinton’s 2nd term. “
Excuse me, is the motto of this place, ‘Everyone is entitled to his own opinion, but not his own facts.’, or is it not? Whether there were real surpluses during Clinton’s 2nd term isn’t like your favorite flavor of ice cream, it’s got an objective answer, and that answer was, (Based on the fact that the DEBT went up every year.) “No.”
Now, I will grant that we got closer to actual surpluses than at any time in the last few decades. I just don’t think that has more to do with Clinton’s unique virtues than a stock market bubble and a death match between legislative and executive branches.
Here’s a report on some research related to all this http://vcresearch.berkeley.edu/news/post-boomers-public-education-worth-more-social-security-and-medicare
The problem with this analysis is that unless you assume that we will later get to default on the debt, what the national debt actually represents is a claim on the American people, as a whole, which will have to be “paid” through spending cuts and tax increases. Certain individuals who hold that debt in the future, will, of course, benefit from the interest and principal payments. But it represents a massive transfer from the public as a whole to a small number of bondholders. Further, the reality is that since you can neither monetize the entire debt nor pay for it entirely through taxes on the rich, the middle class and the poor will have to bear a substantial portion of the servicing and eventually payoff of the debt.
Thus, deficit spending now = screwing the poor and middle class later.
Brett, it is also a FACT that Alan Greenspan testified to Congress that “debt held by the public” was in danger of falling to zero, thus neutering the Fed. The government debt NOT “held by the public” is mainly the SS Trust Fund, as you know. The SS Trust Fund is the paradigmatic example of a debt that “we owe to ourselves”. It is precisely the kind of debt that makes “our grandchildren” neither richer nor poorer, in the aggregate.
Clinton’s budget surplus was not “real” if you DEFINE “real” a certain way — but definitions are not FACTS. The fact was that, indeed, government spending was bigger than non-FICA revenue, but LESS THAN total revenue. Total debt went up a bit; debt “held by the public” went down a bit. What did NOT happen in Clinton’s 2nd term was what you assert to be a universal truth: that government ALWAYS spends more than its revenue. It would be more accurate to say that REPUBLICAN government always makes sure to spend more than its revenue, by cutting its revenue as Dubya did.
By the way, you know perfectly well that population and the economy are more or less always growing, so don’t demean yourself as an engineer by trying to argue that revenue increased under Dubya. The baseline is the trendline, not some fixed level.
In any case, we are drifting way off the main question. Is your devotion to spending cuts so strong that your son’s education, for instance, must be sacrificed if the only way to subsidize it is to either raise taxes on, or borrow money from, Paris Hilton for instance?
-TP
I hate the phrase, “we owe ourselves”. I hate it because, inevitably, you’ve got this set of people over here who owe, and that set of people over there who are owed, and “we ow it to ourselves” only because “we” has been stretched across both groups. “We” is just being used to obscure that. Mark’s stretching “we” across the US citizenry and the government of China is just a particularly egregious example of that.
“What did NOT happen in Clinton’s 2nd term was what you assert to be a universal truth: that government ALWAYS spends more than its revenue.”
What happened during the Clinton administration is that we had a stock market bubble, which boosted revenue faster than a divided government could agree on how to spend it. If you took the most spendthrift family in the world, and they won $100 million in the lottery, they’d still end up in the black for a little while.
But they wouldn’t STAY in the black.
Engineering a perpetual stock market bubble seems a bit tricky, and I suspect you don’t want Obama impeached, either. And I really, REALLY doubt there are many people commenting here who, if revenues went up 85%, wouldn’t want to spend it all. I’m pretty certain Mark isn’t an exception to that, too.