Bill Vickrey and Alan Blinder on the burden of the national debt

A colleague asked me today if I thought the national debt was a burden imposed on future generations.  No doubt my colleague has been following the debate of late on that issue. Anyway, in my opinion, anyone who argues that the national debt is a burden on future generations has to take into consideration the views put forth by the late economist and Bank of Sweden Nobel laureate Bill Vickrey.  According to Prof. Vickrey, the notion that government debt is a burden imposed on future generations is a false worry.  In Prof. Vickrey's own words:

...[I]n generational terms, the debt is the means whereby the present working cohorts are enabled to earn more by fuller employment and invest in the increased supply of assets, of which the debt is a part, so as to provide for their own old age. In this way the children and grandchildren are relieved of the burden of providing for the retirement of the preceding generations, whether on a personal basis or through government programs.

This fallacy is another example of zero-sum thinking that ignores the possibility of increased employment and expanded output. While it is still true that the goods consumed by retirees will have to be produced by the contemporary working population, the increased government debt will enable more of these goods to be exchanged for assets rather than transferred through the tax-benefit mechanism.

Also, in regard to the notion that deficits represent "sinful profligate spending at the expense of future generations who will be left with a smaller endowment of invested capital", Prof. Vickrey considered such an idea a fallacy stemming from a false analogy to borrowing by individuals.  Again, according to Prof. Vickrey,

[c]urrent reality is almost the exact opposite. Deficits add to the net disposable income of individuals, to the extent that government disbursements that constitute income to recipients exceed that abstracted from disposable income in taxes, fees, and other charges. This added purchasing power, when spent, provides markets for private production, inducing producers to invest in additional plant capacity, which will form part of the real heritage left to the future. This is in addition to whatever public investment takes place in infrastructure, education, research, and the like. Larger deficits, sufficient to recycle savings out of a growing gross domestic product in excess of what can be recycled by profit-seeking private investment, are not an economic sin but an economic necessity. Deficits in excess of a gap growing as a result of the maximum feasible growth in real output might indeed cause problems, but we are nowhere near that level.

Finally, it's also important to mention that, as economist Alan Blinder has pointed out in the past, the majority of government bonds in the US have a maturity period of about a decade:

...in my view, most of the debate is beside the point because, in the real world, the bonds that will be issued to cover deficits will almost always mature in less than 10 years, a time frame within which most of today's taxpayers will still be around to pay the bills.  So intergenerational aspects of present-value budget constraints are mostly irrelevant. (2004:19) (emphasis added)

References

Blinder, Alan."The Case Against the Case Against Discretionary Fiscal Policy" CEPS Working Paper No. 100, June 2004.

Vickrey, William. "Fifteen fallacies of financial fundamentalism: A disquisition on demand-side economies", Proceedings of the National Academy of Sciences of the United States of America, Vol. 95, No. 3, February 1998, pp. 1340-1347.