I tried, in the last post, to show exactly how you can get tripped up by playing fast and loose with words like "individual", "generation", and "time period" in this national debt discussion. The words of these terms and what people are refering to matter. Individuals in the future are richer and poorer in the example. The nation at a specific time period is not richer or poorer. Whether a "generation" is richer or poorer depends on whether you definte that like an individual (i.e. - Iris is a future generation and she is clearly poorer), or more like a time period.
Now I'll be the first to admit - Paul Krugman didn't define his terms at the outset, but it always seemed pretty clear to me what he was saying. Was he saying that individuals who live in the future couldn't be hurt by debt? Well that's just silly because in several examples and in the conclusion of the first post he said just the opposite of that! Plus it would be a ridiculous claim in general and Krugman isn't in the habit of making ridiculous claims.
His second post was all about how individuals in the future could be made poorer by debt, but not the nation. If anyone wasn't sure after that, his third post mused on whether the debt would "force America as a whole to spend less than it would have if the debt hadn't existed". The issue here is clearly the relationship between debt and national income. On this point my models and Bob's models unambiguously come out with the same answer - Krugman's answer: national income does not change, but individuals in the future can be richer or poorer as a result.
The Krugman claim was very simple: nation as a whole stays the same, although future people can be richer or poorer relative to the counterfactual.
Can someone explain to me how this isn't exactly what we've all converged on?
And now Bob is offering me to bet against the position I've been trying to expound upon, which says to me we probably need to close shop on this. He says he's genuinely surprised at my response. I'm surprised he's surprised, but I'll trust he is. Like I said in my very first post in response to Nick, I think the big disagreement here is over who thinks what - not over the debt. Even Don Boudreaux was sounding like he was basically making the Krugman claim with a few public choice nuggets thrown in, so I'm not personally convinced this was ever that huge of a divide in the first place.
Sunday, January 8, 2012
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...which says to me we probably need to close shop on this.
ReplyDeleteI got the impression some people (vimothy, boudreaux) were trying to muddy the waters.
Looks like Cafehayek is trying to start up the comments, but they are facebook comments, not disqus. So you have to log into FB, find CH on FB, comment there, and (not yet but maybe someday) they will show up at CH.
IB
Vimothy had it correct.
ReplyDeleteDaniel, go to Murphy's table and ask yourself this question:
If the problem in the future is simply one of distribution, what has to happen in period 9 to make sure Iris bears no lifetime burden?
Having been a sideliner in this debate, I'm happy to have learnt something from Nick Rowe. The current cohort can impose a burden on future cohorts by borrowing.
ReplyDeleteThe "is-Krugman-right-or-not" debate is really tertiary to everything. Rowe's point having been made, it's unhealthy to obsessively hound out Krugman for how far he is from Rowe. At the same time, it's silly to embark on an apologetics campaign, bending the meanings of words in an effort to get Krugman to be saying the same thing as Rowe.
The winner in this debate is everyone who learnt something; the loser isn't Krugman, it's those who didn't learn anything.
Iris does bear a lifetime burden, Yancy. Look at the table.
ReplyDeletere: "The "is-Krugman-right-or-not" debate is really tertiary to everything."
ReplyDeleteNot even secondary? :)
Part of me agrees, since I think Nick Rowe, Bob Murphy, and Don Boudreaux have all made very good points (something I don't always point out with Boudreaux - although his posts on this could still be a little less food-fighty).
But part of me worries about dismissing the "is Krugman right or not" question because the fact of the matter is, Krugman points out excellent facets of the national debt that laymen (ie - voting citizens and taxpayers) regularly misunderstand, and I think it's dangerous for them to misunderstand it. Krugman has entered this debate in "correct popular misconceptions" mode, and it's important to support him in that.
re: "At the same time, it's silly to embark on an apologetics campaign, bending the meanings of words in an effort to get Krugman to be saying the same thing as Rowe."
Most post has nothing whatsoever to do with apologetics - I sincerely hope you're not implying that it does. I'm calling them how I see them. It's what I always do. There's no point in trying to defend something that's not worth defending.
*MY post has nothing...
ReplyDeleteLet's put it this way, if Nick's post hadn't mentioned the name of Krugman, you wouldn't be shedding this much ink on the issue, nor toying with the meaning of the word generations.
ReplyDeleteThis is the post started it all off.
http://worthwhile.typepad.com/worthwhile_canadian_initi/2011/12/debt-is-too-a-burden-on-our-children-unless-you-believe-in-ricardian-equivalence.html#more
Nick was going to write a post on the burden of the debt on future generations before shoveling snow. But alas, he did it after shoveling, saw Krugman's post, and therefore brought Krugman's name into the debate. This lit up the cottage-industry that revolves around proving or disproving Krugman.
I almost wish Nick had kept Krugman out of it, because as a layman it muddied my effort to understand the point that present cohort might impose a burden on future cohort. I didn't realize I was disentangling two debates; the primary one about a burden being placed on future cohorts or not, and the tertiary one about Krugman being right or wrong. I'll have to be more careful in trying to understand future blog debates that invoke Krugman.
re: "I'll have to be more careful in trying to understand future blog debates that invoke Krugman."
ReplyDeleteThis is very wise. Among some people (I would not say Rowe) there's this imperative to disagree with something Krugman says or interpret it in an outrageous way.
Actually this debate has been nice in that regard - Gene Callahan and Steve Landsburg (and Bob Murphy, at least initially) were all on Krugman's side.
Anyway - I think Nick was making a slightly different point than Krugman was, and so the whole thing was somewhat confused. But Nick's post outlining major positions on the debt was good. That helped clarify things a lot.
Nick's posts have been full of very important insights. I'm simply saying Krugman's have too - particularly the op-ed, which was more polished and clear in its intent than the blog posts.
Then, Daniel, you can no longer argue that a future generation doesn't bear a burden despite net income remaining the same across periods. The argument you and others have made is that the outcomes in the future are merely a distributional one, but if that were true, then that future could simply set things right and correct the redistribution through proper lump sum taxations and transfers, but Murphy's and Rowe's examples explicitly shows you that this redistribution cannot ever be corrected- some generation Iris or later must be made worse off on net.
ReplyDeleteYancy - Iris is not a "generation". She's an individual that lives in a particular time period. Of course certain people are going to bear a burden - and when you use debt that's going to be someone in the future. That's the whole point of debt!!!! I don't know why you insist that I am making any other claim. I haven't.
ReplyDeleteBut you cannot point me to a period in the future and say "these people are worse off because of debt".
Daniel,
ReplyDeleteWe can write this spreadsheet 50 million times so that Iris represents 50 million individuals. The name "Iris" is a stand in for a generational cohort, not an individual. That was the entire point of the example. How could you possibly not understand that?
When you or Krugman write that the debt in the future really doesn't matter because it is owed by some Americans to other Americans, what do you mean by that exactly? To me, Krugman simply meant that it can't be a burden to anyone in the future if the future chooses to redistibute that burden, or fix the distributional outcome set up by the origination of the debt in the first place. That is what I understood by the claim that income is simply redistributed- that this distibution can be corrected by the future because, in the example given, total income at any time t is unchanged. However, this is simply not true as Murphy's and Rowe's example shows- Iris cannot ever be made whole. A generational cohort represented by Iris in the hypothetical cannot ever be made whole.
Stop telling me I don't understand things. It's very condescending. Why do you think I haven't understood this?
ReplyDeleteThen that would be 50 million individuals burdened. The point is there are other contemporaries (in Iris's case, Hank) that benefit from Iris's burden at any point in time. In period 9 Iris bears both the liability and the asset, so over her lifetime she bears a cost, but there is no net change in income - not net burden - in that period: which is exactly the situation of every previous period.
You want to call Iris a "cohort". Fine. Future cohorts can definitely benefit or definitely bear costs.
This is why I've been saying we need to be clear on language. If you are calling a "generation" what you call a "cohort" here, then I obviously agree with you. But in a future time period debt doesn't add a burden to the nation as a whole (or if it does its in some example that has eluded me and that Bob hasn't offered - and if you could come up with that I'd be happy to concede the point that this doesn't have to be true). Certainly the general perception that it is often true is a misunderstanding.
re: "When you or Krugman write that the debt in the future really doesn't matter because it is owed by some Americans to other Americans, what do you mean by that exactly?"
Come on. How many times do I have to say it? Here it goes one more time:
Individuals can obviously benefit or be burdened by debt. Indeed, the whole point of rolling over debt is to push those burdens into the future. However, in the future the community as a whole can't be burdened by the debt. Individuals or even entire cohorts of individuals - over the course of their lives - clearly can. But total income (a flow, let's keep in mind) is never reduced by debt (at least in these simple models without changes in behavior due to expectations, taxes that affect labor supply, etc. - we're dealing in an endowment economy so those things don't matter).
re: "That is what I understood by the claim that income is simply redistributed- that this distibution can be corrected by the future because, in the example given, total income at any time t is unchanged. However, this is simply not true as Murphy's and Rowe's example shows- Iris cannot ever be made whole. A generational cohort represented by Iris in the hypothetical cannot ever be made whole."
Maybe this will help to communicate my point. Do you see how - from the first sentence here to the second - you switched gears from talking about everyone in a period of time to one person or group of people over a span of time (to the exclusion of other cohorts who co-occupy that span of time... ie, Old Hank).
You're talking about two completely different things.
Of course Iris is hurt, and she's hurt in a very real sense.
I've said that repeatedly.
"But in a future time period debt doesn't add a burden to the nation as a whole"
ReplyDeleteIs a scenario possible wherein govt debt is so high that a nation as a whole would have its burden lessened if its government stopped taxing its citizens to pay its creditors?
Meh -
ReplyDeleteI would imagine yes.
But remember - this is an endowment economy.
We all agree on the incentive effects of taxation, so that's been left out explicitly.
In fact, such an argument is straight out of Keynes's 1926 open letter to the French minister of finance.
"We all agree on the incentive effects of taxation, so that's been left out explicitly."
ReplyDeleteAre you contending that when Dean Baker says...
"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?"
... that he's not talking about the real-world effects of using deficit financing, but about Bob's model (or something similar?) Is it the same with Krugman? Are they both saying that the complications of contractual obligation imposed on citizens in the future or the ability of the govt to give stuff to some citizens now by diverting savings into govt bonds and out of the private market are not burdens?
Me: "Is a scenario possible wherein govt debt is so high that a nation as a whole would have its burden lessened if its government stopped taxing its citizens to pay its creditors?"
ReplyDeleteYou: "I would imagine yes."
But...
"His second post was all about how individuals in the future could be made poorer by debt, but not the nation."
This is very unique post. I really enjoyed reading it. Thanks for sharing it.
ReplyDeleteYou need to read Warren Mosler's book.
ReplyDelete7 deadly innocent frauds.
"Fraud #2. With government deficits, we are leaving our debt burden to our children.
Fact: Collectively, in real terms, there is no such burden possible. Debt or no debt, our children get to consume whatever they can produce."
Government debt is private savings.
The money to deficit finance will always be there if the money floats, is in your own currency and there is a Central Bank. Since it will always be there, it will never be a problem.
Adam,
ReplyDeleteMost everybody here is quite familiar with MMT, and for the most part everybody here rejects it. There's no need to rehash old debates about MMT, google is your friend.