The Debt Problem Is Still Real

The almost instantaneous howls of outrage that my article in the Sunday Review of The New York Times provoked from highly liberal quarters reminded me of Shakespeare’s famous line that can be paraphrased as “me thinks thou doth protest too much.”

So unhappy is Dean Baker that he is offering a $1 million prize for an example of someone whose views support my point that there exist commentators who are excessively cavalier about the problem of growing national debt.

I would like to claim that prize by offering up Mr. Baker’s own words:

“As a country we cannot impose huge debt burdens on our children. It is impossible, at least if we are referring to government debt. The reason is simple, at one point we will all be dead. That means that the ownership of our debt will be passed on to our children. If we have some huge thousand trillion dollar debt that is owed to our children, then how have we imposed a burden on them?”

This can only mean one of two things: Either debt that is passed on to the next generation isn’t really debt or we will have saddled our children with the daunting obligation of paying off that debt. (And let’s not forget that most Treasury debt is owned by institutions or foreigners.)

But don’t believe me; consider the sole comment that followed Mr. Baker’s blog post on Business Insider:

“Prove it Dean. Debt service (interest) must be paid out of current budgets. So taxpayers years from now will be paying interest on today’s debt. Budget deficits aren’t being used for investment. They’re being used to fund wars and pay for today’s consumption (healthcare, welfare, etc.) Each generation following your generation (baby boomers) is not richer, but rather poorer. And as for you Fed theory … it is just that. You don’t know what the Fed will do or be able to do in the next generation. I’ll look forward to what your kids have to say in 10 years about their burden.”

I couldn’t have said it better.

As for Paul Krugman, who also took a shot at me on his blog, I wasn’t aiming my article at him but the fact that so many of his readers immediately associated the point with his writings is revealing in itself. If he indeed disagrees with my characterization of the progressive view as violently as he says, he might want to clarify his position in future columns.

But in fact he used his blog post about me to reconfirm the reason why many readers thought of him when they read my lament:

“What I was actually saying, of course, is that debt is a liability that we pass to the next generation — but it’s also an asset that we pass to the next generation. It can cause problems, but it doesn’t impoverish the country the way an excessively large mortgage impoverishes a family.”

My view (expressed as well in a previous blog post of mine) is that debt that we pass along to the next generation – particularly when it results from excessive consumption rather than investment — in fact does impoverish a country in exactly the way an excessively large mortgage impoverishes a family.