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National Debt, a War between Current and Future Generations?

Borrowing is the means by which future wealth is moved into the present. It is not necessarily a bad thing, either individually or collectively. The question is whether the wealth transferred into the present is used to create or sustain value into the future.

Borrowing to pay for college, for example, can be good debt. Assuming college allows one to increase one’s future income greater than the cost of loan repayment in the future, then borrowing can make sense individually.

So, too, collectively. Borrowing to pay for public capital projects that generate future payoffs greater than the amount borrowed makes sense as well. Dams and infrastructure can be examples, provided expected future value is high enough. But investment does not need to be recognizable capital projects. Borrowing for the defense buildup in the early 1980s under Ronald Reagan could be plausibly justified even on a cost-benefit basis: On the one hand, compare what the on-going cost of continuing the Cold War would have been with the cost of a one-time buildup in the U.S. military sufficient to force the Soviet Union’s capitulation. While we don’t know whether the long, expensive wars in Iraq and Afghanistan would have been fought if the Cold War had not ended, at the time, in the early 1980s, it seems at least a fair argument that the costly arms buildup of the 1980s paid dividends far into the future.

But borrowing is also fraught with incentive problems, both personally and collective. Most people, misers excepted, have time preferences that value current consumption over future consumption. The current self tends to value filling its stomach relative to the future self’s stomach. If indulged too far, folks get their future selves into trouble by over committing future income to repay debt taken on for current consumption. The benefit to the current self is not commensurate to the cost the future self must pay.

The temptations for government debt are even worse. The intertemporal nature of debt intersects particularly perversely with the nature of government, with majoritarian politics, and with the problem of collective action.

Like corporations, and unlike human persons, governments do not in principle have finite lives. Debt obligations can go on and on. Unlike one’s personal debt obligations which ends with one’s life (or at least with one’s estate), government debt continues intergenerationally. And the intergenerational nature of government debt makes it a ripe candidate for the politics of faction.

We typically think of faction as the government taking from one currently existing group and inappropriately redistributing to another currently existing group. And it is a problem even without laying on an intertemporal dimension. For example, taxing everyone to pay for public schools that only the majority children can attend is a classic example of a factious outcome. By its very nature, majoritarian processes don’t work well to correct factious outcomes of this sort. Indeed, these outcomes result from the majoritarian process.

Government borrowing complicates the problem of faction by adding intertemporality to the already pathological mix.

The current generation can constitute itself a faction against the future, moving future resources into the present, and consuming them, without an expectation of maintaining or increasing the set of resources against which it has borrowed.

Indeed, majoritarian processes are even less apt to prevent intergenerational faction. When everyone exists already, then at least there’s a vocal minority, and at least some votes. Perhaps the Madisonian electoral or legislative instability of majority coalitions formed from groups of minorities might offer some protection. But adding in the intertemporal issue, those who might be burdened with paying off current borrowing might still be non-voters below the age of 18, or might not even be born yet. (And we can nod at the philosophical question of obligations to as yet non-existent people as we tiptoe around it.)

So, too, American political institutions are even less effective in protecting against the consequences of intergenerational faction than they are at protecting against the consequences of extant faction. While judges might intervene to protect some minority groups against majoritarian predation, future generations are not specially protected classes.

Despite their popularity at the state level, constitutional balanced budget amendments don’t seem to have worked particularly well. Courts have largely proven unwilling to step into the political fray to enforce them, and alternative institutional arrangements, such as the ones posited in the original Gramm-Rudman Acts, run into separation-of-power problems. Without external control mechanisms, balanced budgets can be enforced only by the political branches of government. But the political branches of government are those most susceptible to the temptation of factiously preferring the present generation over future generations.

A balanced budget amendment, even if largely unenforceable, might still provide a formal, aspirational focal point, one that might be able to rally both voter and legislator in sufficient numbers to work occasionally. The problem is not merely one of the economics of ballooning debt. Like all factious outcomes, it is a matter of justice. But it’s more than that. Parents are supposed to look out for the welfare of their children. For more than a generation, though, the politics of intergenerational faction has set up the reverse: the parents party, but leave the bill for their children.

Reader Discussion

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on March 23, 2018 at 13:16:19 pm

"...the parents party, but leave the bill for their children."

Hey, leave the Baby Boomers alone, although I would add this:

"the parents party, but leave the bill for their children [nor do they educate their young].

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gabe
on March 23, 2018 at 15:49:00 pm

All corrupt tyrannies collapse in a mountain of debt.

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EK
on March 23, 2018 at 16:05:44 pm

How about a balanced budget amendment that makes voting for or signing an unbalanced budget both a criminal and an impeachable offense?

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timothy
on March 23, 2018 at 16:13:24 pm

Would it be *untoward* of me to suggest the types of punishment for those guilty of the offense.
Or would that be 'cruel and unusual"- Yep, you betcha!!!!!!

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gabe
on March 23, 2018 at 16:18:51 pm

Oh, you Baby Boomers , you are safe...as always it ALL caters to YOU. It is my generation, that you call "X" (as in "crossed out") that will pay and pay, but get nothing. There are 78 million Boomers, and because WE bore the brunt of the Abortion 'culture', there are only 38 million of us Cross-Outs. After you Boomers live out your 95+ year life spans, the "Millennials!", who vastly outnumber us (AND who are YOUR kids, BTW) will vote US out of any bennies. There will by then be no real political consequence for this like there would be for axing Boomers...

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TimH
on March 23, 2018 at 16:22:26 pm

But now for a more serious note:

This is addressed to the economists amongst the LLB faithful.

I recall reading some time back (for the life of me I cannot remember the author or the book, however) that debt, at least Sovereign debt, more specifically late 17th and 18th century debt instruments issued by the English Crown actually was instrumental in a) creating capital (or at least the *potential for formation), b) increased the rate of capital exchange / churn and c) enabled the nascent industrial and commercial expansion of the UK.

Can anyone knowledgeable (certainly more knowledgeable than this old knucklehead) comment on this?

Would it be fair to modify EK's statement above:

"All corrupt tyrannies collapse in a mountain of debt."

TO: ""All corrupt tyrannies collapse in a mountain of debt [after having first judiciously deployed debt, eventually and unavoidably losing sight of the limits of debt for both capital formation and international exchange]. ????????

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gabe
on March 23, 2018 at 16:25:50 pm

Hey, do you want to AXE the Boomers or just age them.

Apologies to Johnathan Swift, but here goes:

The [Baby Boomers] are the most [pernicious race of odious little vermin that have ever suffered to crawl upon the face of [this once great nation].
I think Gulliver would approve.

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gabe
on March 23, 2018 at 19:17:37 pm

HaHa! Is that the Yahoos?

The Boomers are like the Yahoos and I think should be renamed Yahoos.

Like TimH I hate the Boomers/Yahoos but not for his reasons: I hate them because they gave us the solipsistic 60's, the criminal Clintons and the most destructive Democrats since the Ante-bellum South.

I was born in 1944, a mewling and puking infant on D-Day, part of the great Silent Generation whose Dads thereafter made us undeservedly part of their Greatest Generation.

I guess they would be Gullivers' honorable Houyhnhnmse and I would be one of their the colts.

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timothy
on March 23, 2018 at 20:49:58 pm

This article may be a clue. Don't know the book your trying to recall. Given the period and the subject, it's probably a discussion in Smith's Theory of Moral Sentiments or somewhere in the Wealth of Nations.

http://www.countriesquest.com/europe/united_kingdom/history/british_colonial_expansion/the_18th-century_economy.htm

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timothy
on March 24, 2018 at 10:19:25 am

Your thinking of the chartering of the Bank of England in 1694 and the great re-coinage supervised by Isaac Newton first as Warden and then Master of the Mint beginning in 1696.

In short, managing of the national debt was assumed by the Bank of England and the Bank issued notes based on deposits of gold and silver from the Treasury. These notes soon circulated as the equivalent of cash and could be redeemed for gold at the bank's gold window.

Newton's recoinage solved the problem that about 25% of the circulating coinage was either clipped or counterfeit. Under Newton, English coinage became recognized for its standard of purity and the Mint began publishing exchange rates for foreign specie in circulation and, eventually, Britain moved from a bimetal gold and silver standard to a gold only standard.

At the same time, in order to pay for the Nine Years War and rebuild the Royal Navy the government of William III revived many of the revenue measures developed by Parliament, the Commonwealth and Protectorate between 1642-60. In general the Stuart Restoration was perpetually in debt, it let the Royal Navy decay and it allowed English policy to be dictated by France and Spain in exchange payments made to the person of the king - i.e. Charles II and James II were taking bribes.

After 1696, sound money, reliable debt instruments, a reliable source of national revenue, a strong navy and a strong commitment to mercantilism all fostered economic growth and the expansion of the first British empire, which ended with the loss of the American colonies.

Mark Kishlansky's "A Monarchy Transformed; Britain 1603-1714" is a good introductory survey of the period. It does not go into depth on any topic but Kishlansky does not miss any important topic

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EK
on March 24, 2018 at 11:04:27 am

Thanks - good recital of the history.
And yep - it was the fact that the notes of the Bank of England served as a cash equivalent that spurred growth.
Debt, carefully planned and managed, may be critical to growth.

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gabe
on March 24, 2018 at 11:11:39 am

:...whose Dads thereafter made us undeservedly part of their Greatest Generation."

Yep, at times, I think that Boomers are as bad as we are BECAUSE our parents having endured so much deprivation (Depression) and brutality (WWII) came to the not unreasonable conclusion that "life [can] be brutal and short" - so why not let the kids have some freedom and enjoy themselves.
In short, they were a little too accommodating of our childish whims / needs.

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gabe
on March 24, 2018 at 11:45:25 am

Oh my! I'm already hopelessly lost in the labyrinth of British history and will not be found if I must first read a book entitled “A Monarchy Transformed; Britain 1603-1714.”

An impressive reader and no doubt an Anglophile is the man for whom such a survey constitutes "introductory" stuff and who can claim knowledge that there EVER was in the history of ANY country such an event as the "Nine Years War."

The only British history take aways of which my untrained mind is capable are answers to the questions: "What was one of the countries in the Nine Years War and how long did that war last?

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timothy
on March 24, 2018 at 11:58:29 am

Louis XIV's France was the enemy. It was fought with allies on the Continent and Provincial militia in the Americas.

Wiki has a good entry.

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EK
on March 24, 2018 at 12:31:35 pm

Timothy:

Uhhhhh! HOW long did it last? - Ha!

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gabe
on March 26, 2018 at 11:33:51 am

Any discussion of this topic which does not include the nature of a fiat currency is bound to be misleading.

Rather than confuse things with my own meager explanations, I will merely suggest that people read "Understanding Modern Money", by L. Randall Wray, PhD of the University of Missouri, Kansas City, particularly the chapter on the history of money, which casts serious doubt on the idea that money has anything to do with the *intrinsic value* of the items used for money (precious metals, stones, etc). Rather, the nature of money is inherently tied up with the problem of how the sovereign money issuer moves resources from the governed to itself, to sustain itself and those in its employ.

For those not inclined to part with cash to dive deeply into this, I point readers to the dozens of YouTube videos with Wray, Stephanie Kelton, or Warren Mosler., for example, this one:

https://www.youtube.com/watch?v=i35uBVeNp6c

by Wray,

or this:

https://www.youtube.com/watch?v=g6rlprwQB5E

by Dr. Kelton

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Chris Lynch
on March 26, 2018 at 11:42:27 am

Unenforceable? Not if you draft it right.

I’ve drafted a balanced budget amendment that would actually work:

https://deanclancy.com/a-balanced-budget-amendment-that-would-actually-work/

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Dean Clancy
on March 26, 2018 at 13:40:19 pm

Mr. Clancy, I like your amendment. It is written with admirable lawyer-like precision so that even Democrat-appointed judges would find great difficulty in evading it, although, to be honest, if the courts' rulings on Trump's various immigration EO's are an indicator, Obama's ubiquitous Article III appointees would march right through your amendment in the name of social justice and human rights, their ultimate if unwritten Supremacy Clause.

As we have learned since the late FDR Court, when it comes to applying the plain, unambiguous text of the constitution
“Who are you going to believe, (judicial oligarchs) or your own lying eyes?” is the rule of construction more often than not.

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timothy
on March 26, 2018 at 15:51:52 pm

Why a simple majority vote to approve an increase in the debt?

Why not a 6/10th majority or 2/3rds?

I can readily imagine our spendthrift Congressmen / women *concurring* on the need to expand the debt, and not coincidentally to retain their positions of power and influence.

Otherwise - luvv'd it!!!!

Oops, almost forgot:

How about if we throw in a clause that causes the Congressional Staff to be eliminated along with the Congress.
I guess I am just dreaming!

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gabe
on March 28, 2018 at 14:21:43 pm

All this talk about the British and no one mentions that the passing of debt by government to non-voting generations, including the yet-to-be-born, is TAXATION WITHOUT REPRESENTATION!

There is also conversion here about “Aximg” the Baby Boomers. I assume by this you mean late postpartum abortion.

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Rick Skiba
on March 29, 2018 at 09:44:08 am

Do you suppose, Gabe, that you're the only one who got it?

You are the only one who expressed appreciation of the little joke's humor.

And the joke was SOOOO obvious! Just a variation on "Who's buried in Grant's Tomb?"
as to which I've noticed, BTW, that the people who respond as if they get it really don't get it.

People tend to laugh and answer "Grant," whereas no one, not even President Grant,
is buried, let alone alone forever (mersus semper solus,) in Grant's Tomb.
Ulysses and Julia Dent Grant are both at rest there but were not buried there.
They were sepulchred in Grants' Tomb, above ground there, forever together (semper copulabis.)

Sounds shameful and indecent, I know, like death and burial in flagrante delicto, the way one would expect to find a philandering, hypogeal Bill Clinton and a teenage White House intern, not US Grant and his life-long beloved.

So, as to all those (except Gabe) who missed or ignored my little joke, I say either there are among us many humorless readers or many who read everything as if it were an email breezing right past the details or many ungrateful of the gift of humor (gratitude being a lagging virtue nowadays) or many sufferers of historical apathy.

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timothy
on November 22, 2018 at 11:52:37 am

[…] Source: Lawliberty.com […]

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Image of The piles of Debt created by American Wars without much Strategic Benefit – Qutnyti
The piles of Debt created by American Wars without much Strategic Benefit – Qutnyti

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