The German weekly newspaper Welt am Sonntag (June 26, 2011) explained to Sigmar Gabriel, chair of the Social Democratic Party of Germany (SPD): »We’re living at the expense of our grandchildren and great grandchildren, since they have to pay for all of that.« In every talk show debate, the remark always comes up at least once that »we« cannot incur debt at the expense of our children and grandchildren. That is a requirement of the fundamental principle of »intergenerational justice«. The dramatic picture is clear: debts incurred today have to be paid back in a few years or decades. If new debts are taken on every year, then the pile of debt becomes larger. The more debts accumulate, according to this argument, the less money there is for other expenditures, for example for education, road construction, and social programs.
What Truth is There to That?
This picture is also wrong. First of all, assets such as roads or schools that are financed by credit are also available for use by future generations. Second of all, with government debt, no redistribution between generations occurs, but rather redistribution within a generation: generally, from »below« to »above«. How does that work? »Our grandchildren« do not just inherit the debt, but also the claims upon the debt, so they also inherit wealth. One can picture this using the example of a family: when the mother lends 100 euros to the father, and both die, the children do not just inherit the 100 euro debt of the father, but also the mother’s claim. So who inherits the debt and who inherits the claim? Who has lent money at interest to the state? And above all else: who pays this interest and where does the money come from? Continue reading “»Our Grandchildren Will Have to Pay Back Our Debts«”