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Generational Burdens

Jonathan B. Wight

 

 

The U.S. fiscal debt stands at $15,712,963,917,010, according to the debt clock. Of course, that number is only a gross estimate and it is difficult to even record the amount because the numbers are whirling so fast.

With the U.S. population clock up to 313,525,628, every baby born today comes into the world in debt for $50,000. That's the bad news.

The good news is that an average child born in America is fabulously wealthy, according to both financial and other forms of wealth. So, if we are going to look at the average debt burden it makes sense to look at the average inheritance as well.

A key question is: what is the relationship between debt and wealth creation? Everyone knows the answer to most economic questions is, "It depends." Borrowing to spend on consumption is unsustainable. Borrowing to get an education leads to wealth creation down the line.

One of Krugman's main arguments for fiscal stimulus (piling on more debt today) is that unemployed workers experience a decline in their human capital the longer they are out of work. Think of a steel machine left out in the damp night: it will start to rust. Work provides the oil that lubricates and keeps it in shape. This is particularly so of younger workers entering the labor force for the first time:

For there is growing evidence that the corrosive effects of high unemployment will cast a shadow over the economy for many years to come. Every time some self-important politician or pundit starts going on about how deficits are a burden on the next generation, remember that the biggest problem facing young Americans today isn't the future burden of debt — a burden, by the way, that premature spending cuts probably make worse, not better. It is, rather, the lack of jobs, which is preventing many graduates from getting started on their working lives. (Krugman)

So the generational burden is not simply a financial one. It involves a human capital story. To Krugman younger workers are mostly not structurally unemployed, they are cyclically unemployed. But cyclical unemployment that persists will eventually lead to structural unemployment. And that could be the larger generational burden.

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