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On the Burden of Government Debt

Who bears the burden of government debt? In my latest column for AIER I do my best to explain the pioneering answer to this question given by my late Nobel-laureate colleague Jim Buchanan. A slice:

The second prong of the Keynesian orthodoxy is that the burden on society of government debt is shouldered at each of the moments when programs that are funded with debt are undertaken. If, say, Uncle Sam borrows $10 billion to build 100 F-35 fighter jets today, all of the labor, metals, plastics, and other real resources that would otherwise have been used differently are consumed today to produce the fleet of fighter planes. The 100 commercial jet liners – or the 500,000 automobiles, or the 10,000,000 sets of patio furniture, or some quantity of whatever – that would otherwise have been built are not built. Society today gets 100 F-35s in exchange for giving up whatever else would have been, but was not, built and consumed.

The third prong is that government deficit financing imposes no burden – none! – at any time at all, on anyone at all, when it is done during periods of unemployment. According to Keynesians, if Uncle Sam borrows $10 billion to build a fleet of F-35 fighter planes (or whatever) during a recession, nothing is sacrificed. Keynesians assume that all of the labor and other resources used to build the planes would otherwise have remained in involuntary idleness. And so by pulling those resources out of their unwelcomed idleness, the debt-financed production of the F-35s actually cost nothing at all!

Keynesians believe that during recessions lunches really are free.


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