Does Debt Actually Hurt Future Generations?

As the national debt approaches $16.4 trillion, it is worth reminding ourselves why that debt should give us cause for concern. Government debt represents excessive government spending, which itself can be harmful because it crowds out private investment by redirecting resources to projects that are designed more for political than economic benefit. But debt itself — outlays in excess of receipts — has consequences beyond that of even a “responsible” level of spending, since it represents payments that future generations will have to make. By racking up debt today, we are imposing a burden on our children.

Keynesian economists object and say that debt does not hurt future generations, provided that “we owe it [the debt] to ourselves.” Dean Baker writes that “[a]s a country we cannot impose huge debt burdens on our children [since] the ownership of our debt will be passed on to our children. If we have some huge thousand trillion dollar debt that is owed to our children, then how have we imposed a burden on them?”

The reasoning seems valid. Even if we rack up debt today, and our children have to pay off that debt at a future time, they will only be paying it to other Americans. Thus, that generation of Americans will, on net, be no poorer because of the debt created by their parents. The debt merely causes a transfer of resources from taxpayers to bondholders.