Lerner, A. P. 1948. “The Burden of the National Debt,” in Lloyd A. Metzler et al. (eds.), Income, Employment and Public Policy, Essays in Honour of Alvin Hanson. W. W. Norton, New York. 255–275.I provide a summary of Lerner’s key points below:
(1) Lerner begins by pointing out that private debt is different from government debt (Lerner 1948: 255–256). In an aggregate sense, government debt is owed by citizens of a nation to other citizens of that nation. That idea is summed up in the phrase “we owe it to ourselves” (Lerner 1948: 256).
Lerner disposes early on of the “debt burdens our children” argument:“A variant of the false analogy is the declaration that national debt puts an unfair burden on our children, who are thereby made to pay for our extravagances. Very few economists need to be reminded that if 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.” (Lerner 1948: 256).By contrast, debt owed to foreigners can be considered a burden (Lerner 1948: 256), because the debt is external, and to the extent that real goods and services will be demanded by foreigners, this is a real cost.
“In attempts to discredit the argument that we owe the national debt to ourselves it is often pointed out that the ‘we’ does not consist of the same people as the ‘ourselves’. The benefits from interest payments on the national debt do not accrue to every individual in exactly the same degree as the damage done to him by the additional taxes made necessary. That is why it is not possible to repudiate the whole national debt without hurting anybody. While this is undoubtedly true, all it means is that some people will be better off and some people will be worse off. Such a redistribution of wealth is involved in every significant happening in our closely interrelated economy, in every invention or discovery or act of enterprise. If there is some good general reason for incurring debt, the redistribution can be ignored because we have no more reason for supposing that the new distribution is worse than the old one than for assuming the opposite. That the distribution will be different is no more an argument against national debt than it is an argument in favor of it.
8. The growth of national debt may not only make some people richer and some people poorer, but may increase the inequality of distribution. This is because richer people can buy more government bonds and so get more of the interest payments without incurring a proportionately heavier burden of the taxes. Most people would agree that this is bad. But it is no necessary effect of an increasing national debt. If the additional taxes are more progressive — more concentrated on the rich — than the additional holdings of government bonds, the effect will be to diminish the inequality of income and wealth.” (Lerner 1948: 260–261).
(2) Lerner addresses the idea that, if taxes are raised to pay for interest payments on the debt, this might have a contractionary effect. While this might be true, Lerner points out that there is no reason why the government need raise taxes to meet its obligations in paying debt, if contractionary fiscal policy is not desired: the reality is that government can simply “roll over” debt with more borrowing (Lerner 1948: 258–259).
Lerner, A. P. 1948. “The Burden of the National Debt,” in Lloyd A. Metzler et al. (eds.), Income, Employment and Public Policy, Essays in Honour of Alvin Hanson. W. W. Norton, New York. 255–275.