Government Debt - No Burden on Future Generations

Image credit. Continued from here.

The Fourth Industrial Revolution?

Bill Mitchell has a new post up that I find excellent in terms of understanding a Post-Keynesian-MMT take on the present debate about the "Fourth Industrial Revolution." The latter is based on the Luddite notion that modern technology is bound to reduce employment in absolute terms. Put differently: more modern technology inevitably means higher levels of permanent unemployment.

In his counterargument Mitchell emphasises that there are politically induced, and hence, reversible reasons why full usage of all resources, including of course human labour, is not attained. For purely ideological reasons, public debt and, more significantly, fiscal spending is not being sufficiently taken advantage of to improve the employment situation. Artificial limits are being imposed upon fiscal spending, far below the point where government expenditure would be detrimental, i.e. give rise to inflation. It is this lack of government participation in the economy that accounts for a large part of what appears to be an inherent feature of modern technology - a putative quality of reducing the absolute level of productively employable human labour.

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Debt Today - Burden Tomorrow?

What I meant to deal with in the present post is, however, a different matter. Namely, the claim that high levels of public debt represent burdens on future generations. The core of the argument is: contemporaries take on debt to finance current consumption, while leaving the bill to be paid by future generations.

I do not quite understand Mitchell's (and Abba Lerner's) argument, which contents that incurring public debt does not bring about a burden to future generations. There is only a redistribution of wealth among the contemporary generation:

[I]f our children or grandchildren repay some of the national debt these payments will be made to our children or grandchildren and to nobody else. Taking them altogether they will no more be impoverished by making the repayments than they will be enriched by receiving them.

So, there may be distributional issues, such as "the rich" holding large positions in government debt which is being serviced disproportionally by "the poor". But there is no exploitation of future generations by former generations.  

Actually, I am confused as to why taxpayers need be involved in repaying public debt, if the government is capable of doing the job without recourse to anybody's funds.

Maybe this resolves the problem: Taxes are the mechanism by which government determines the relative share that government and the non-government sector have in the total of available resources. At full employment (of all resources, including labour), taxes could be a way in which government inhibits the non-government sector's ability to avail itself of these resources; taxes bring about a shift of the usage of these resources in favour of government. 

However, when Abba Lerner (to whom Mitchell refers) wrote about the distributional consequences of taxes raised to cover debt, we had a non-fiat money regime (Bretton Woods), where government was financially constrained. So it did have to tax in order to be able to service and repay debt.

In the case of a fiat currency, taxation for that purpose is not required. Government is free to incur debt without requiring the taxpayer to fund the debt. The only remaining constraint is imposed by real resources. At full employment, the government may divert a larger portion of resources to itself by reducing, through taxation, the private sector's ability to purchase these resources. If resources are underutilised by the private sector, government can spend to bring more resources into use, up to the point where inflation is triggered, which may be a far off prospect.

Concludes Mitchell,

Of course, as a result of the collapse of the Bretton Woods system, currency-issuing governments are now free of any financial constraints (unless they voluntary cede their currency sovereignty as in the Eurozone) so any of the distributional arguments relating to tax burden shifts are moot.

The only economic constraint facing governments in this situation are real resource availability. The rest are political (read: ideological).

While it is sensible for governments to increase spending and substitute increased non-government debt with increased cover meant debt, it is even more sensible for governments to refrain from any further debt issuance and draw on the central bank’s unlimited capacity to credit relevant bank accounts in the currency of issue to match its spending program.

Once you understand that it is only real resource availability the constrains government, then all the rest of the discussions about the impacts of computerisation and the room for government to move become clearer.

There is no denying that technological change (for example, robots and computers) are extremely painful processes for individual workers who lose their employment prospects to endure.

But at the macrolevel, there is no reason for total employment to decline as technology changes composition of employment in favour of higher skilled, less routinised jobs.

The responsibility of government is to use its unlimited financial capacity to ensure that there are transitional processes in place to allow workers to maintain income security while employment shifts are ongoing.

These processes should include direct job creation, enhanced education and training, regional industry strategies, investment in best practice technology and deployment, and a safety net Job Guarantee program.