[UPDATE: I just realized I used U=ln(X) instead of U=sqrt(X), which is what Bob originally specified... and I stupidly deleted the excel file and don't have time to redo it now. I don't think it should change any of the conclusions - only the numbers. But if someone wants to double check that, be my guest]
...but perhaps still worth making.
Bob Murphy tries to bolster Nick Rowe's case here with his OLG table. It does not demonstrate at all that future national income is hurt by debt. Quite the opposite. It does demonstrate what everybody always said - debt has distributional effects. It also shows that when you make young people pay in the future the benefits that old people enjoy in the present and then kick that can faster than your income grows... people in the future do worse than people in the present. Go figure.
But how are we supposed to feel about this?
When we compare generations, one thing that economists are usually careful about doing but Bob did not to do (to simplify things) is discount the future. So at period 1, if we assume the discount rate equals the interest rate (we have no depreciation in these apple trees, so that's reasonable) and otherwise assume Bob's additive natural log utility function, what do you get?:
A slight preference against debt transfers.
It's entirely driven by the consumption smoothing preference.
That's fair enough. But what if old people in this model had income of 50 and young people had income of 150? That's why we do Social Security, is it not?
Then you'd have a preference for transfers financed by debt sitting at period 1, again, because of a desire for consumption smoothing over the life-cycle.
Empire of the Institute
1 hour ago