I hadn’t intended this to be national debt week here at The Big Questions, but when you get into a back-and-forth with a guy as compulsively readable as Bob Murphy, you milk it for all it’s worth.
Murphy objects to formulations along the lines of “government debt is not a burden because we owe it to ourselves” and offers a parable that he thinks illustrates all the key issues. I agree that his parable illustrates all the key issues, so let’s review it — and see what it really illustrates.
In Year One, Abraham (who is old) owns an old apple tree and Isaac (who is young) owns a young apple tree. Each tree delivers 100 apples to its owner. Shortly thereafter, Abraham’s tree dies and Abraham follows suit. In Year Two, Isaac’s tree delivers him another 100 apples, and then both the tree and Isaac die.
Now in Year One, Abraham’s government decides to give him a present of 10 extra apples, which it borrows from Isaac. As a result, Abraham gets to eat 110 apples and Isaac eats only 90. In Year Two, the government owes Isaac 11 apples (including interest). It gets these apples the only way it can, by taxing Isaac. Therefore Isaac pays 11 apples tax, receives an 11 apple bond payment, and eats 100 apples. Bottom line: The government policy has increased Abraham’s lifetime apple consumption at the expense of Isaac’s. Therefore, says Bob, it’s clear that the government’s debt constitutes a burden to Isaac.
Fine. Here’s my counter-parable. In Year One, Abraham’s government decides to give him a present of 10 apples, which it gets by taxing Isaac. In Year Two, the government does nothing. The government policy has increased Abraham’s lifetime apple consumption at the expense of Isaac’s exactly as in Bob’s story. The Landsburg-Isaac feels exactly the same burden as the Murphy-Isaac, even though there is no debt in the Landsburg world. Therefore debt cannot be the source of Isaac’s burden.
Indeed, the source of Isaac’s burden, plain and simple, is that his government decided to transfer resources from him to Abraham. Whether they do this via debt or via taxation is as irrelevant as whether they deliver the apples to Abraham by truck or by train.
If the apples are delivered to Abraham in a wheelbarrow, one could, I suppose, blame everything on the wheelbarrow and talk about the “burden of the wheelbarrow”. And in some very contorted sense, one could defend that position. But why would you want to?