It's budget time, again. This means that the deficit hawks will be out in force warning us about the devastating debt burden that we are passing on to our children. So that this Halloween fright gang doesn't needlessly cause any kids to lose sleep, here's what parents can tell their children.
First, it is important to tell your kids that the national debt is not in any way a measure of intergenerational transfers from the young to the old. Debt is also an asset to the people who own the bonds. At some point, everyone who is alive today will be dead, which means that the bonds they own will be passed on to their or someone else's children and grandchildren.
Our children and grandchildren might owe the debt, but they will also be receiving the interest paid on the debt. There can be an issue of distribution within future generations (e.g. Bill Gates' descendants own all the debt), but that is a question of inequality within generations, not between generations. So, when you hear the deficit hawks ranting about the $15 trillion debt that we are passing on to our kids, you can tell your children that we are passing on $15 trillion in government bonds to our children.
Of course, some of the debt is held by foreigners. Many of the deficit hawks have been harping on the China menace, running scary ads about how the Chinese are going to own the United States in 20 or 30 years.
While the debt service paid on the bonds held by foreigners will be a drain in future years, there are two important points to keep in mind. First, the outflow on interest payments on bonds held by foreigners is still quite small by any measure.
The second and more important point is that foreign ownership of government bonds and US assets more generally is determined by the trade deficit, not the budget deficit. It is our $600 billion annual trade deficit that gives China and other countries the means to buy up government bonds and other US assets.
The trade deficit is in turn primarily the result of an overvalued dollar. This means that if the deficit hawks were really worried about foreigners owning too much of the US economy then they should be railing about the overvalued dollar, not the budget deficit. When the deficit hawks rant about China owning the US, they are either confused or being dishonest.
There are certainly times when deficits can make our children poorer than they otherwise would be. If the economy were operating near its potential, and the deficits had the effect of raising interest rates and pulling money away from private investment, then the economy would be less productive in the future as a result of the deficit.
However, the relevant measure here is not the deficit or debt, but productivity growth: the rate at which the economy is getting more efficient. Productivity has continued to grow at close to a 2.5 percent annual rate, meaning that the economy is getting more efficient at a relatively rapid pace.
This is not surprising, since it is absurd to imagine that current deficits are pulling money away from private investment. Interest rates are at near rock-bottom levels. Given the huge amounts of excess capacity in most sectors, it is likely that the deficits are actually increasing investment by increasing demand. In this sense, deficits are making our children richer. This would be even more true insofar as the deficits are being run to build infrastructure or to finance education and training; all of which will make the economy more productive in the future.
There is an issue with the debt that is worth discussing: the country will have to raise tax revenues to finance its annual interest payment. This does impose an economic cost, since taxes are at least somewhat distortionary. However, this problem is enormously overplayed.
Suppose that we eliminated $1 trillion of our debt burden by selling off public roads and allowing private companies to charge tolls. Are future generations better off by this huge reduction in the debt burden?
They aren't in any obvious way. In fact, depending on the terms of the deal, selling off public assets to reduce the debt could in fact lead to much higher economic costs for future generations. These costs just would not show up as public debt.
This point should sound familiar to people. There have been several prominent cases of asset sales of exactly this sort. For example, Indiana's Gov. Mitch Daniels sold off the Indiana toll road to reduce that state's debt. In my hometown, former Mayor Richard Daley sold off a 75-year lease of Chicago's parking meters to a consortium led by Morgan Stanley. This reduced the city's debt, but did not necessarily benefit either current or future generations of Chicagoans.
There are other ways in which the government imposes future burdens that are not at all captured in budget numbers. Patent and copyright monopolies are, in effect, a way that the government allows individuals and corporations to get a claim to future income flows to promote innovation and creative work.
The more items that are subject to such protection, the greater the burden will be on future generations. We pay roughly $300 billion a year for prescription drugs that would sell for $30 billion a year in a free market without patent protection. This is equivalent to a tax of $270 billion on prescription drugs (at 1.8 percent of gross domestic product) that is paid to the drug companies because of a government-imposed patent monopoly.
There is an endless list of issues like patent protection and the sale of public assets that will have a large impact on the well-being of future generations. If the deficit hawks really cared about our children's well-being, they would be talking not just about deficits, but all the issues that affect the health of the economy and society that we will pass on to future generations.
However, concern for our children's well-being is not their real agenda. The deficit hawks want to scare them in order to advance a very different agenda. Watch what they do.
Truthout Is Preparing to Meet Trump’s Agenda With Resistance at Every Turn
Dear Truthout Community,
If you feel rage, despondency, confusion and deep fear today, you are not alone. We’re feeling it too. We are heartsick. Facing down Trump’s fascist agenda, we are desperately worried about the most vulnerable people among us, including our loved ones and everyone in the Truthout community, and our minds are racing a million miles a minute to try to map out all that needs to be done.
We must give ourselves space to grieve and feel our fear, feel our rage, and keep in the forefront of our mind the stark truth that millions of real human lives are on the line. And simultaneously, we’ve got to get to work, take stock of our resources, and prepare to throw ourselves full force into the movement.
Journalism is a linchpin of that movement. Even as we are reeling, we’re summoning up all the energy we can to face down what’s coming, because we know that one of the sharpest weapons against fascism is publishing the truth.
There are many terrifying planks to the Trump agenda, and we plan to devote ourselves to reporting thoroughly on each one and, crucially, covering the movements resisting them. We also recognize that Trump is a dire threat to journalism itself, and that we must take this seriously from the outset.
After the election, the four of us sat down to have some hard but necessary conversations about Truthout under a Trump presidency. How would we defend our publication from an avalanche of far right lawsuits that seek to bankrupt us? How would we keep our reporters safe if they need to cover outbreaks of political violence, or if they are targeted by authorities? How will we urgently produce the practical analysis, tools and movement coverage that you need right now — breaking through our normal routines to meet a terrifying moment in ways that best serve you?
It will be a tough, scary four years to produce social justice-driven journalism. We need to deliver news, strategy, liberatory ideas, tools and movement-sparking solutions with a force that we never have had to before. And at the same time, we desperately need to protect our ability to do so.
We know this is such a painful moment and donations may understandably be the last thing on your mind. But we must ask for your support, which is needed in a new and urgent way.
We promise we will kick into an even higher gear to give you truthful news that cuts against the disinformation and vitriol and hate and violence. We promise to publish analyses that will serve the needs of the movements we all rely on to survive the next four years, and even build for the future. We promise to be responsive, to recognize you as members of our community with a vital stake and voice in this work.
Please dig deep if you can, but a donation of any amount will be a truly meaningful and tangible action in this cataclysmic historical moment. We’re presently working to find 1500 new monthly donors to Truthout before the end of the year.
We’re with you. Let’s do all we can to move forward together.
With love, rage, and solidarity,
Maya, Negin, Saima, and Ziggy