Reply To: How debt is passed off to future generations


There are two different issues that we should not conflate. The first is the transfer of control over resources from private hands to the state. The happens whenever the state spends funds, from whatever source it acquires them: taxes, borrowing, and monetary inflation. This transfer of control takes resources out of the realm of efficient decision making by entrepreneurs using economic calculation and puts them into the realm of inefficient decision making by politicians and bureaucrats. The burden of the loss of efficiency is born in the present by society at large.

The second issue is the transfer of wealth between taxpayers and bondholders in the future as the state pays the bondholders. This does not transfer resources from private hands to the state. It transfers wealth between two private parties, taxpayers lose and bondholders gain. Of course, this has inefficiencies too since it’s coerced, but it does not transfer resources to the decision making control of the state.

This distinct is helpful in disabusing one of the fallacy that if the state borrows today the burden falls entirely on future generations. Actually, the burden falls on the present generation as resources in the present are wasted by the state. Then, in the future, the state adds the additional inefficiency of coercively transferring wealth from one private group, taxpayers, to another private group, bondholders.