January 30, 2009 10:40AM

Burden of Stimulus and Debt

Politico noted that those opposing the stimulus plan:

…say that borrowing more money to finance a stimulus package will pass a crushing and possibly permanent debt load on to the next generation. “The question is,” says Chris Edwards, the director of tax policy studies at Cato, “is this morally proper?” Edwards says no. “Policymakers are saying: ‘Screw the future generations.’”

Some people are skeptical of such statements, asking how government debt can impose a cost on future generations — after all, don’t we “owe it to ourselves?”

There is an economics answer to this, but you can also consider the basic libertarian theme of voluntarism vs. coercion.

Suppose there are three groups in society: beneficiaries of government programs, taxpayers, and creditors. Now suppose that in year one the government borrows $800 billion for a spending plan, which must be paid back in year two.

In year one, government beneficiaries are better off, taxpayers are not affected, and creditors are better off because they entered a voluntary financial exchange with the government. Since voluntary exchanges are mutually beneficial, nobody is worse off in year one.

The burden of deficit spending must be moved elsewhere — to year two. In year two, government beneficiaries are not affected and creditors receive their repayment. But taxpayers are hit with a bill for $800 billion plus interest, and this is no voluntary exchange. This is an $800 billion extraction with the full coercive power of the government coming into play.

Deficit spending pushes burdens into the future because it delays the use of coercive power. And unfortunately, there is a growing amount of federal coercion awaiting the next generation of young Americans, given that federal public debt is $7.2 trillion and rapidly rising.