Simon Wren-Lewis has another post on the relevance of government debt for future generations, explaining a point that Nick Rowe has also made in the past. They both set out clear explanations, but the issue continues to cause much confusion. It's not hard to see why. The suggestion that public debt can be a burden on the unborn seems to imply that the future can somehow be drained of resources for the benefit of the present. Clearly, this is not what it means and Wren-Lewis is in fact careful to avoid using the term "burden" in his post.
Actually, I think the debt aspect can be a little misleading here, as it draws people into thinking that this is all about a requirement for future generations to cover a repayment obligation. So I thought it would be interesting to look at this issue by focussing purely on the asset side.
Imagine there are two groups of people, wealthy and poor. The wealthy own $100 of government issued bonds and money. The poor own nothing. (These discussions are usually cast in terms of two period overlapping generation models. The wealthy would then be the old generation and the poor would be the young. I don't need to be so specific here.)
Each year the economy produces 100 real goods. Normally these sell for $1 each, so income and expenditure are both $100. However, there is more potential purchasing power here than there are goods. In addition to the $100 of income, there is $100 of wealth. But there are only 100 real goods.
If the wealthy decide not to spend any of their wealth, then there's no problem. Alternatively, if they do decide to spend some of their wealth, but others decide to save some of their income, that may be OK as well. So, if the wealthy decide to spend $30 of their wealth and those earning income decide to save $30, that's still only $100 being spend on 100 of goods. So providing $100 of wealth gets carried into the next year (whether that's with the original holders or new ones), it's fine.
However, the problem does not go away; it simple gets passed on. That wealth will always represent purchasing power for which there are no goods. For there to be surplus goods on which that wealth could be spent would require the economy to produce more goods than it does income. This is clearly impossible.
But if there aren't enough goods to go around, who loses out? What would happen in the current year, if the wealthy tried to spend all their wealth and the earners tried to spend all their income?
As there aren't then enough goods to go around, this would push prices up. This has different effects on income earners and the wealthy. If prices go up, income earners (in aggregate) are unaffected, since their earnings go up at the same rate. If the 100 goods now sell for $2 each, their income is now $200. But the wealthy have no such protection. They still only have $100 of wealth which will now only buy 50 of goods.
Ultimately, if income earners want to spend all their income, prices will rise indefinitely and the wealthy will be completely squeezed out. So if the wealthy want to be able to cash-in their wealth, they rely on income earners wanting to save some part of their income (or have the government save for them by running a surplus). As long as there are savers, anyone with wealth can use it to claim a share of produced goods, passing the wealth overhang onto someone else.
How does the generation question fit into this?
People are born with no wealth. If they're lucky they may get bequests from their ancestors, but otherwise if they want wealth, they have to save. Which means they have to consume less than they earn today. This gives the opportunity for the wealthy to spend all their wealth before they die, acquiring and consuming goods. They will have managed to swap purchasing power for which there is no corresponding production into real consumption. And they will have done so by passing the wealth onto the young savers.
As long as this continues from generation to generation forever, then this may never matter. But there will always be more purchasing power than there are goods. And if, for whatever reason, all that purchasing power goes after the same goods at the same time, someone will lose out. And it won't be those people that are already dead.
I find it quite useful to recast the issue this way. But it is not intended to be an argument that public debt should be reduced because it is a burden on the unborn. Public debt is not only a liability but also someone's asset. You can only get rid of the liability, when people are prepared to do without the asset.