Re: generational accounting/kotlikoff

[cottrell@xxxxxxx (Allin Cottrell)]

Randy Wray...

>Govt interest payments aren't necessarioly a bad
>thing--they are income. They are bad only if they crowdout other types
>of more useful govt spending because deficit hawks believe deficits
>are bad.

Basically, agreed.  But I have heard it argued (though I'm not sure
whether the data bear this out) that large government interest payments
imply a perverse inter-class transfer of income, with working-class
taxpayers providing the revenue to finance interest payments to the
predominantly rich holders of government debt.  From this
perspective, the implied better alternative is balancing the budget (on
average, over the cycle) via more progressive taxation.  Though it may
have something going for it, this view (a) is clearly a non-starter under
current political conditions, and (b) has the weakness of abstracting
from the impact on aggregate demand of balancing the budget (unless
one advocated a large expansion of government expenditure at the same
time, and relied upon the balanced-budget multiplier -- though that only
takes one further from current reality).

=======================
Allin Cottrell
Department of Economics
Wake Forest University
Winston-Salem, NC, USA
(910) 759-5762
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