Robert Skidelsky runs through and corrects five fallacies about debt that one often hears lazily deployed in the public arena. His third correction:
…the national debt is not a net burden on future generations. Even if it gives rise to future tax liabilities (and some of it will), these will be transfers from taxpayers to bond holders. This may have disagreeable distributional consequences. But trying to reduce it now will be a net burden on future generations: income will be lowered immediately, profits will fall, pension funds will be diminished, investment projects will be canceled or postponed, and houses, hospitals, and schools will not be built. Future generations will be worse off, having been deprived of assets that they might otherwise have had.
Nick Rowe had a post a couple weeks back on this same topic that might be of interest to some MMTers and Abba Lernerites. Rowe lays out four different positions on the question of whether or in what sense the national debt imposes a burden on future generations, the first of which (it’s labeled “Abba Lerner”) sounds like it’s supposed to represent functional finance. Rowe is ultimately dismissive of the functional finance approach, but you’ll find quite a bit of lively discussion in comments and a number of links to the ongoing debate.
For some background reading on functional finance, Thorvald Grung Moe recommends this short piece from 1943 by Abba Lerner himself: “Functional Finance and the Federal Debt.” It’s tightly argued and written in a reasonably jargon-free style that’s so rare in economics or public policy writing.
For those who want more of the basics and central contrasts, Mathew Forstater’s primer on deficit “doves,” “hawks,” and “owls” (beginning on p. 6 of this working paper) is a helpful place to start.
Update: Nick Rowe graciously engages in the comments section below.