Government debt is not a burden on future generations

The Guardian have an article today about an index that purports to measure intergenerational fairness:

“Young people face a steeper climb to achieve the lifestyle of today’s baby boomer generation, according to an index measuring intergenerational fairness which recorded a rise from last year.


The declining affordability of housing for the under-30s accounted for the increase alongside a rise in government debt, which future generations must pay.”


In response, economist Bill Mitchell has written a great blog questioning some of the indicators used to build the index, in particular the government debt measure, which Mitchell argues in no way places a burden on future generations. The blog is excellent but a little long, so I thought I’d just quote some choice sections here:

“…the inclusion of public debt and unfunded pension liabilities for government workers in the index are based on a misunderstanding of what actually will burden the future generation.


The fact is that the current government has as much ‘money’ now as it had yesterday and the same amount it will have tomorrow. That is, it has whatever it wants to spend. It always has that. It has no more or less capacity to spend today because there were surpluses in the past than it would have if there had have been deficits in the past.


The implication of the IF Index components is that fiscal surpluses provide more spending capacity in the future or lower tax rates. That is plain false.


Every generation chooses its own tax rates. That is, the mix of public and private sector involvement in the economy is a political choice. If the future generations want more private and less public they will choose lower tax rates etc.


Currency-issuing governments do not draw down on the savings provided by the previous government’s surpluses. It is a nonsensical notion thinking that a sovereign government would ‘save’ in its own currency.”


He goes on:

“The idea that borrowing ‘takes money from the pockets of future taxpayers’ is nonsensical. The funds to pay for the bonds originate in the government net spending in the first place.


Clearly, deficits now are in part helping the current generation with income transfers and the like. But they also facilitate public education, public health and other infrastructure which provide massive benefits into the future for the current generation and their children.


Once you understand that then the idea that there is a future burden will make you laugh.”


And on the idea that we’ll all have to be taxed more in the future to pay back today’s debts:

“There has never been an empirical relationship shown between tax level changes and debt level changes lagged however many years you like. The notion is ridiculous.


I have never been asked to pay back the public debt that was accumulated as non-government wealth by my parent’s generation. But I sure benefited from the public infrastructure that the continuous fiscal deficits allowed the government to provide.


If you want to provide for the future generation then the things that will matter are education, employment and public infrastructure. All three are investments in the future. On all three, the previous government failed dramatically.


The best thing this government can do to prevent entrenched disadvantaged among our youth is to ensure they have work now or are in education and training programs.”


So the next time you hear someone argue government debt is placing a burden on our children’s future, you’ll know they’re talking nonsense!



10 thoughts on “Government debt is not a burden on future generations

  1. “The best thing this government can do to prevent entrenched disadvantaged among our youth is to ensure they have work now or are in education and training programs.”

    Isn’t that exactly what this government would say it is doing? The fact that the work doesn’t pay enough, and the education and training programmes are profit-making schemes for employers, rather than real education and training, doesn’t come into current thinking at all.

    1. I think language has been abused to the extent now that when we hear jobs, education and training for young people, we automatically think workfare. It needn’t be!

  2. Reblogged this on Jay's Journal and commented:
    I have to question some of this as so many hundreds of thousands are in poverty, in debt through no fault of their own and are homeless. If there is no need to be then why aren’t people doing something instead of letting so many of us suffer?

  3. Pensioners are not a burden on young people. Young people will not pay for the pensioner generation in the future. We all pay and we have all paid throughout our lives.

    Pensioners short of a state pension since 2013 (women born since 1953 and men since 1951), will lose this food money for life from 2016:

    Politicians have never understood the people they rule. That is seen in history again and again.

    A national debt does not exist unless it 100 per cent and more all the time. A deficit is not a national debt.

    National debt rises because of welfare reform admin, when if it had been left alone as it was, then the focus of funding could have been on literacy, numeracy and apprenticeships for young people.

    The ring fenced National Insurance Fund is full, not needing a top up from tax for decades. The NI Fund cannot be emptied to pay off national debt, as it is not a tax and so cannot be used for general expenditure by government. This is proved by government paying the interest returning on the loan by any money temporarily used from the NI Fund today.

    There is no need for the suffering of welfare reform aka abolition of the welfare state, let alone pension reform, that together has been a cause of the death of the high street and loss of jobs.

    75 per cent of tax from people comes from stealth taxes, that some have calculated means the poor, in or out of work, pay a 90 per cent tax rate.

    Bedroom Tax from the poorest is to pay a wealthy politicians’ spare room subsidy of £20,100 (2013 figure) second home allowance and all the expenses on top of that.

    Housing Benefit is a subsidy to landlords and not those on benefit, pushed into needing help with rent bills by a legal minimum wage giving an income back to 2002 levels, when living costs are spiralling ever upwards, with at least 4 per cent inflation in food prices each year.

    The Greens offer in their manifesto pledge for 2015:

    – universal non-means tested (‘unconditional’) Citizen Income
    to meet basic needs, non-withdrawable.

    The socialists back in 1997 gave a manifesto pledge of:

    – state pension for men and women at £320 per week
    – 50 per cent increase for current receivers of state pension and pensioner benefits.

    If the socialists, Labour Left think tank and The Greens merged to form a mass party, and offered these pledges of Citizen Income and proper state pension payable now, then the high street would revitalise and young people would find jobs in the town centre.


    1. The Citizens income can never work. If you believe that the wealthy should be taxed, then you have automatically demonstrated the reason that the Citizen’s income doesn’t work.

      There is no economic reason to tax the wealthy. Let them count their coins if it makes them happy. It doesn’t mean there is any less coins for everybody else.

      The reason you hate the wealthy so much is because they have got something without having done enough to earn it. The same feeling dooms the citizens income. It can never work until you have over 50% of the population prepared to work all week for a now relatively low extra salary, and pay 50% income tax on that while others of the same age and fitness level drink beer and watch TV for a living.

      Similarly the idea that you can ever save up for a pension or ‘pay into’ a pension. That is exactly the same as wearing a jumper in August in an attempt to save warmth for January. It doesn’t work. Pensions are just paid – to those who wider society considers have ‘done enough’.

      Pensions are always a current production issue. It is the amount of current *real* output that is available to those who have not been party to its production. The only way to make sure that pensioners are catered for is to invest in productive capacity *today* so that we can make more stuff using less people. That means concentrating public firepower on education, research and development.

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