- 23 Dec 2020 00:24
#15144620
Further evidence undermining the mainstream case against fiscal deficits
From Bill Mitchell's blog 12/23/20. I reformatted it a little and added some emphasis.
Link to the full article.
http://bilbo.economicoutlook.net/blog/?p=46566
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From Bill Mitchell's blog 12/23/20. I reformatted it a little and added some emphasis.
The mainstream belief is based on the erroneous conflation of a household and government budget.
So when a household/firm borrows now to increase current consumption (or build productive capacity) there is a clear understanding that future income will have to be sacrificed to repay the loan with interest.
This result follows because spending by the non-government body (household and/or firm) is financially constrained. A household must finance its spending either by earning income, running down saving, borrowing and/or selling previously accumulated assets. There is no other way. Borrowing has to be repaid via access to the other sources of spending capacity but by implication such repayments reduce the future capacity to spend.
This is translated (erroneously) into the public sphere with the claim that governments have to pay the debt back in the future by increasing taxes. The consumption benefits of the higher spending now are enjoyed by us and our children pay for our joy by facing higher tax burdens. That is the nub of the mainstream argument.
But do our children forego real consumption in this way? Answer: no!
If our children produce $x billion in real GDP in 2025 all of that flow of real goods and services (and income) will be available for consumption should they choose to do that. They probably will save some of it (especially if the government runs a deficit of sufficient magnitude to fill the spending gap left by the desire to save by the non-government sector).
But the important point is that real GDP is not a reverse-time traveller. There is no government agency collecting real output to “pay back past debts”.
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The public debt ratio has no bearing on any of this. The only possible burden on our children relates to my term “environmentally-sustainable” which includes consuming through time within the limits of real resource availability.
If the current generation cruels the world’s environment and exhausts finite resources then unless technology changes dramatically (for example, to use different energy sources for transport, etc) then our children will not enjoy the same lifestyle that we enjoy (using enjoy liberally!).
But that conclusion relates to competing uses of real resources. The public debt ratio has nothing to do with that possibility.
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Link to the full article.
http://bilbo.economicoutlook.net/blog/?p=46566
.