Sunday, February 22, 2009

Intergenerational Theft

I think that Senator John McCain's accurate description of the stimulus bill as "intergenerational theft" was particularly stinging to those sensitive souls on the left who see comments like that as having the potential to further erode the left's dubious claims of doing everything for the sake of the children.

I happened to come across this verbose piece that attempts to debunk McCain's statement. I'll save you the tiresome chore of reading it by explaining his ridiculous argument. His scenario goes something along these lines:

Suppose the government needs to borrow $10 million to build a road. The government will sell bonds to raise the money, promising to pay back the bond holders in, say, 30 years, the original $10 million plus interest. Because these transactions occur between people of the current generation, there is no intergenerational transfer of wealth.

30 years into the future, the children of the original bond holders are now due their money. But it is the children of the original borrowers that will be repaying this debt. And again, there is no intergenerational transfer of wealth occurring.

So according to the author of this nonsense, it is not intergenerational theft to borrow money from China because it is your children who will be paying back the Chinese children. Voila!

To be fair, the author does go on to mention that this debt financing can potentially make the future generations worse off if, among other things, we borrow from foreigners. Apparently, as long as the masses of American children are indebted to the children of the few wealthy Americans, then all is well, and McCain was way off base with his description.

It's scary how some people think.

3 comments:

  1. Better late than never: Your ignorance of finance is really profound. When the government borrows money to build a road, the costs are spread out over time. So are the benefits of the road. No intergenerational theft. Same as when a company borrows money to build a plant. Costs spread over time, revenues spread over time. Same when someone borrows money to buy a house. Mortgage payments every month, benefits (housing) every month. If you want you can build the road out of current tax revenues, and make the benefits a gift to future generations.

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  2. Howard, thanks for the comment.

    Most of your comment is ancillary nonsense which doesn't really address the issue. But your final sentence is what really gives you away.

    Please, provide me with a few examples of how we're bestowing gifts upon future generations as we pass on to them (as of today) a 14 trillion dollar debt.

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  3. It's the wonderful gift of pain. We don't want to feel any now so we borrow from the Chinese, enjoy our lives and hand the bill to the kids. A bit different from the Greatest Generation.

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Please tell me what you really think.