Trying to avoid the national debt getting bigger?  That would be the real problem.  As usual, Keynesians aver that debt isn’t a problem, because we owe it to ourselves.

Globally, and for the most part even within countries, a rise in debt isn’t an indication that we’re living beyond our means, because as Fatas puts it, one person’s debt is another person’s asset; or as I equivalently put it, debt is money we owe to ourselves — an obviously true statement that, I have discovered, has the power to induce blinding rage in many people.

And not only do we owe it to ourselves, but the “ourselves” is limited to this generation:  those of us who introduce moral concerns over sticking it to the next generation are wrong.

Debt has distributional implications, and it may have macroeconomic effects because of those distributional issues. But again, all this is within the current generation; it’s not about the present versus the future.

Mr. Krugman is rightly recognized as an excellent trade economist, but he seems to enjoy stirring the pot in the areas of monetary theory and public finance–not his areas of expertise.  He seems completely unaware of the work of Nobel Laureate James Buchanan, who, in my mind, decisively proved that the burden of debt does fall on future generations back in his classic 1958 work, Public Principles of Public Debt.  By using a series of T-accounts (simplified balance sheets), Buchanan logically walked through each potential representative person in the public process of debt, and sure enough, it is the future generation that will pay back the debt. Buchanan’s analysis does not mean that a nation should never take on debt, but it does show that it will be the future generation that pays.

This suggests that part of the public calculus of whether to fund spending via debt must be why would our grandkids benefit from this current spending given they are going to have to pay it back?  I think if we found a magical cure for all types of diseases we would be foolish not to borrow money to pay for it*, given that it seems likely future generations would benefit from the elimination of disease. But it should pretty much rule out spending that is effectively consumption spending for our current generation.  It was for his work in both public finance and public choice that Mr. Buchanan received his Nobel; Mr. Krugman would be advised to understand the literature before confidently asserting that “nobody understands debt,” which he does every few years.  When Mr. Krugman goes to the peer-reviewed journals with his paper proving Mr. Buchanan was wrong, I’ll give him more attention. Until then, he shouldn’t be given much more credit on the issue of the debt than the readers of this blog.

* This is still a second best option.  If there is money available (at least domestically), why won’t current citizens be willing to pay taxes if the spending is so value-added as the case I’ve made?  Giving someone else the tab even for spending that we think will benefit them seems problematic, and would seem to be exceptional in any case.