Is federal debt really nothing more than money ‘we owe to ourselves’? No. It frays the political fabric, and we are feeling its effects already.
“The debt we create is basically money we owe to ourselves, and the burden it imposes does not involve a real transfer of resources,” Paul Krugman wrote recently in “Debt Is (Mostly) Money We Owe to Ourselves.”
“That’s not to say that high debt can’t cause problems — it certainly can. But these are problems of distribution and incentives, not the burden of debt as is commonly understood.... talking about leaving a burden to our children is especially nonsensical; what we are leaving behind is promises that some of our children will pay money to other children, which is a very different kettle of fish,” he added.
If this little lullaby (“the debt is something we owe to ourselves”) helps you sleep, then you may be in for a rude awakening. Government debt frays the political fabric, and we are feeling its effects already.
Think of a simple economy, where the only product is corn. There is no foreign sector, and there are no financial claims more complicated than IOUs.
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