Seeing the debt as an issue between generations is wrong in almost every dimension. The idea that future generations will somehow be stuck with some huge tab in the form of the national debt suffers from the simple logical problem that we are all going to die. At some point, everyone who owns the debt being issued today, or over the next two decades, will be dead. They will have to pass the ownership of the debt to someone else - in other words, their children or grandchildren. This means that the debt is not money that our children and grandchildren will be paying to someone else. It is money that they will be paying to themselves.
There are certainly issues of intra-generational distribution. If Bill Gates's grandkids own all the debt, then there will be a serious issue of income inequality 50 or 60 years out - but that is not an intra-generational issue.
Of course, some of this debt will be owned by foreigners. The interest and principle payments by our grandchildren will make the country as a whole poorer. However, the foreign ownership of US financial assets, including government debt, is determined by our trade deficit, not our budget deficit.
Those who proclaim themselves concerned that our grandchildren will be stuck making huge payments to the Chinese or other foreigners should be focused on reducing the value of the dollar. A more competitively priced dollar will be the key to getting our trade deficit closer to balance and reducing the outflow of dollars each year that are used to buy up US financial assets.
The main factor that will determine the economic wellbeing of our children and grandchildren will be the strength of the economy that we pass down to them. This will depend, in turn, on the quality of the capital and infrastructure we pass onto them, along with the level of education we give them, the state of technical knowledge we achieve and the state of the natural environment. Read the full report here.
Source: Dean Baker, guardian.co.uk.
