Tuesday, 16 October 2012

Public Debt

Are we now after all the conferences have finished, in a situation where all political parties agree that public debt must be reduced?

Suppose the public debt has no impact on current investment or current consumption, or the entire future path of consumption from now until the end of time.

If the government gives a lot of money to people who are old right now, and as a result they consume more right now, then by assumption the currently young must consume less right now. Since we are assuming no change in the paths of aggregate consumption and investment from now until the end of time, all generations excluding the currently old must consume less, in aggregate.

Suppose the current old generation consumes £100 billion more. Also assume that each future generation, including the current younger generation consumes £1 billion less over their lifetime.  Then assume that after 100 generations Earth is destroyed by an asteroid.  QED.

Now how does that help the one million 18-24 year olds who are unemployed today?

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