Re: generational accounting/kotlikoff

[ACSLKS@xxxxxxxxxxxxxxxx id <01HMQ66F69YU8Y606D@xxxxxxxxxxxxxxxx>; Mon, 06 Feb 1995 11:14:49 -0400 (EDT)]

> On Sun, 5 Feb 1995, Randy Wray wrote:
>
>  > ... That is, it will be obvious that the profligate consumption of
>    today in no way burdens future generations. Hope that was clear.
>  > Randy Wray
>

and J. G. resonded:


> 		Clear or not, Randy's conclusion is correct.
> 		Future generations can be burdened only by
> 		our failure to create production capacity,
> 		a safe environment, national security, an
> 		infrastructure to support all our needs,
> 		and similar real assets. Paper liabilities
> 		can burden the future if they are owed in
> 		foreign money which in future we try to pay
> 		off. Bankruptcy even protects future kids
> 		from that. Of course, consumption hurts us
> 		in this generation if the real resources
> 		devoted to it could have better been devoted
> 		to something else.
>
> 			John
>

To play the devil's advocate, there are two instances in which your burden
conclusions are wrong.  First, when taxes are raised in the future to pay
interest, this will impose a burden on the future generation.  This burden does
not arise because of resource reallocation, but rather due to the dead-weight
loss due to taxation.  This loss would rise presumably as the ratio of revenue
needed to service the debt to GNP increases.

Second, if the resource withdrawal from the private sector is from capital
without a corresponding credit for social capital, then loan financing will
burden future generations through a smaller capital stock.

Of course I am aware of the qualifications involved and the need for a
capital/current budget process, but the above orthodox views do bear
mentioning.

Lonnie K. Stevans