(Yes, I know he's in Norway and the prize is Swedish, but that's why I said "Scandinavian". Quit nitpicking. I'm just making a joke).
Stickman* has an excellent post on the debt debate. I'll let you click through, but he points out something I completely missed in Bob's tables, and now I'm not even sure Bob and Nick are right on the questions that Bob and Nick are interested in (whether future cohorts are made poorer by debt). Indeed, I'm now wondering if future cohorts are of necessity made richer by debt, ceteris paribus), with no effect on future GDP. Stickman claims that this is the result of bringing fresh eyes, and not necessarily a better brain, to bear on the problem. I think that's probably too modest.
There are many sharp brains blogging about this right now, though, one belonging to Nick Rowe and one belonging to Bob Murphy, and I look forward to their thoughts on stickman.
I think this is a new point - apologies to anyone who has said this. He asked me if anybody had and I don't remember it.
UPDATE: Not meaning to detract from the post at all, but it seems like maybe Bob and Steve did explore this already. Bob writes (way back when): "Now somebody like Steve Landsburg is going to look at the chart above and say, “I don’t know why you Austrians keep picking on poor old deficit finance. It gets a bum rap. The real burden imposed on Iris is the taxation in period 9. Her ability to engage in a mutually agreeable bond deal with the government, actually makes her better off than if she were forced to consume (100, 0). So deficit finance actually helps Iris; it’s the taxation that hurts her.”
OK sure Steve, that’s technically right. But COME ON. Once the government in period 1 gives a freebie of 10 apples to Old Al, and doesn’t have the political cajones to directly tax Bob to pay for it, future generations have their fates sealed. As that government debt gets kicked down through the generations, somebody has to get screwed: either the taxpayer who retires the debt, or the bondholder left holding the bag when the government defaults. Depending on the timing, the chickens might not come home to roost until the people who must singly or jointly suffer the brunt of this pain, weren’t even alive when the original transfer happened."
This seems like the same point. I've still been spinning my wheels on other issues and it's taken stickman to point this out to me, and I suspect others are in that position as well. Bob's response here is very weak IMO. What if the taxpayer never retires the debt and the government never defaults? This is not 16th century Southern Europe, after all. These are modern public finance systems. Shouldn't non-retriement of the debt and non-default be our default assumption here?
This also comes back to a point I made a lot in the first round but haven't made as much in this round. It's true, it seems a little unfair if the government doesn't have the political cajones to directly tax the first young person to pay the first old person. But in real life governments have had the political cajones to do that. As I stated a lot previously, Social Security is not funded by debt, for exactly this reason. What do we fund with debt? Investments in the future. Our major intergenerational transfer program is funded by taxes. In fact we have a whole separate tax system - FICA taxes - just to make sure that it works that way. So when you don't change the financing mid-stream, Bob's case is looking a lot weaker. The only remaining problem is the "political cajones" problem, and in real life we seem to do OK on that count too - if FDR didn't have political cajones, I'm not sure who did.
* - Do I have to continue using this handle? You've commented with your real name elsewhere.