Paul Krugman has a new and rather innovative theory why we should neither stop spending government money at the present pell mell rate, nor begin taxing to cover the cost of that spending. It’s similar to his, “we will never have to pay the debt because inflation will make it disappear.”
This one is that “it’s money that we owe ourselves” and so we can simply ignore the debt. Basically, he claims, when we borrow money we are merely taking it out of one pocket and putting it in a different pocket. It’s still our money, and it doesn’t matter which pocket we have it in, so let’s keep borrowing and spending because life is good.
He is “refuting” the argument that we are leaving a huge debt to our children and there’s a certain logic to what he says, albeit a very shallow one. The government debt is in the form of treasury bonds and, while the debt is being left for our children to pay, so are the bonds being left to our children, and so it’s essentially a wash.
The first flaw is that our children will not inherit anywhere near all of the assets which he claims, since some 32% of them are currently owned by foreign governments. So the statement that “it’s money we owe ourselves” is a false premise to begin with and about a third of it is money that we owe someone else. Even when he throws that little parenthetical “mostly” in there, 32% of $14.1 trillion is a rather massive debt that we are, in fact, passing on to our children with no offsetting asset.
There is also the little fact that the people who receive government services and the ones who hold government bonds are not the same people. How many people receiving unemployment benefits and food stamps do you know who also hold treasury bonds? I didn't think so. So, yes, we are leaving a huge debt to that portion of future generations which is not rich and does not hold enough treasury bonds to offset the government services which they will lose.
The more serious flaw, however, is that we are setting future generations up to lose governmental function twofold, because when the bill comes due not only will that generation be taxed to repay the debt, but it will be taxed to pay for the services that we are presently getting without paying for them.
We absolutely are leaving a debt to future generations when we pass along to them the requirement that not only must they pay for their own needs, but they must at the same time pay for the services which we received and for which we did not pay. Paul Krugman and his cohorts may be able to play some numbers games which make that look okay on paper, but it can never be okay in practice.
The really serious flaw Krugman's argument is a moral one; the endless insistence in this nation that we receive that for which we do not pay.