Who Bears the Burden of Government Debt? | Robert P. Murphy

Recorded at the Mises Institute in Auburn, Alabama, on 26 July 2017.

[@jmcarp98]

Bob is absolutely brilliant. I have heard him speak before, and he has such a deep understanding of economics, that he is able to explain it so simply and clearly to even your average person.

[@nelsonnash6466]

Yes, there is nothing quite so beneficial to the human psyche than to discover "I was wrong." Thanks for this, Bob

[@JennWest-Liberty]

As far as I'm concerned, whoever created the debt owns it! The United States is not the people.

[@marengoczar5035]

In that world, there's no country or nationality just individuals...which is true

[@andrii5054]

The problem is, The United States has the power to tax the people

[@homewall744]

Nope, they did it in your name, your future's name, and without concern for getting buy-in from you.

[@JennWest-Liberty]

@@homewall744 a legal name that exists with a legal state.

[@hadensbigfatclipstackaroon2695]

This video addresses a different question. Obviously, you and I don't rightfully owe any debt that we never agreed to. The question is, can the debt's weight be borne by future people even if all of the people owed are within the same group as the ones who will be paying? Bob (and I) would say yes, for the reasons stated in the video, and I would argue that this only strengthens the anti-government-debt position.

[@2vnews902]

The working class shoulders the burden of taxes and government spending, regardless of who writes the check for the taxes.

[@nelsma292]

Yes. Tax the rich, they have less money to pay those 'blue-collar' workers. Taxes on anyone are taxes on everyone who works.

[@abramgaller2037]

That is very true .

[@2vnews902]

abram galler I agree.

[@2vnews902]

John Grit, the self-employed are part of the working class.

[@abramgaller2037]

I have no problem.

[@edstud1]

Interest on debt compounds!

[@ryanbeck7166]

edstud1 Easy solution, stop selling bonds.

[@jackdeniston9326]

@@ryanbeck7166 yeah, but not until after I have died

[@abramgaller2037]

Government debt is very severe in its implications ,if it is continually refunded as is the case .The debt service continues to grow because no debt is retired ,there is inflation because at least portions of the debt are monetized,the tax burden increases,yet there are anti-employment and anti-production laws--- shrinking the pool of taxable income ,and the cost of boondoggles increase faster than inflation ,due to the fact that commodities front-run inflation,as does labor cost.

[@allthemarbles5793]

Let me do you a wilder concept nobody talks about... BANKS USE THOSE BONDS AS TIER ONE CAPITAL FOR MARGIN TRADING!

[@Ryan-xq3kl]

smells like a financial crisis waiting to happen... OH WAIT IT IS HAPPENING

[@michaelchristian1538]

Very important concept to understand. Debt "canceling itself out, because we owe ourselves" is a fallacy. Debt is debt whether it's citizens that own it or Chinese or whoever. Debt service is gunna get nasty soon.

[@mun85]

I'm missing the role of inflation in this video.

[@christiancampbell466]

This video is about a Ponzi scheme. Private Ponzi schemes end in default, whereas government Ponzi schemes can depend on deferred taxation. Inflation is a counterfeiting scheme. It can occur separately or compound the problem.

[@aeroeng22]

Question--how do you know Krugman is wrong? When he opens his mouth (or puts something down on paper).

[@joefromzohra]

Murphy's argument has its own flaw: as the debt increases over the next several generations, inflation must be taken into account. So borrowing $1 debt today might turn into $1.1 debt in the future, but the purchasing power of that dollar has decreased. So $1.1Future = $1Today. Therefore, future generations are NOT getting poorer (this is always under the assumption that the debt is held by its own citizens).

[@EC-hc6kx]

I feel like this could have been summed up in saying that eventually, not factoring economic growth keeping pace, that debt servicing levels will be projected to be too large as a percentage of the budget, and subsequently future budgets will require higher taxes to reduce debt levels, while maintaining the rate and/or rate of growth of government spending. If now the margainal tax rate has to be raised to 30% when collecting on the bond as opposed to 25% when the bond was purchased, any return under about 5.175% is a net loss to the lender, because he gets also taxed on his interest.

[@RandallSteen]

Bob... it is much easier than that. The argument I made 28 years ago with my Harvard educated teacher at Westtown friends socialist boot camp was this. If you had the money to do X, why are you even borrowing the money. It is delusional., Luke you grandmother dialing back her scale and then pretending she didn't know. Forget the discount rate and demographics. For that I was ridiculed by my teacher and pears, many of whom were Warren Buffet protégés. This happened 28 years ago when I was 18. But I couldn't possibly be right. I was an ignorant hay seed from the Midwest that didn't have the pedigree, they thought, that they did. #socialismsucks

[@dr.lyleevans6915]

I am staunchly anti-Marxist, but I believe there can be some utility in borrowing money even if you have it. For instance, if you want to invest it and will profit more than the interest. Or want to keep your savings for reserve etc. Also if you believe the currency may inflate to a point where you will actually profit (due to actual buying power ie PPP). I have done similar things. Edit: I am also a “country bumpkin”, except from the South (Appalachia, NC). I went through the same judgmental bs in college, even though I tested better and had better grades than the majority of them. Have 2 Ivy League degrees now (Con Law, doctorate; Business Admin (B.B.A., marketing)

[@marengoczar5035]

My issue with examples is that it doesn't address growth or the banking system role in the system in growth. This model is more effective in a fixed system like Gold. Like if growth is 5%...if you borrow effective 10% of reveue with a 5% coupon. If that gives you 6% or 8%growth vs 5%. There's value depending on the return. Basically, borrowing isn't bad, if with reason and within reason.

[@scotland369]

i feel this presentation is really muddled. The people who pay are the future and the in the event of default, the creditors. The creditors bonds are tied up in our economy so everyone pays one way or another. Rule 1 - if your going to borrow wealth, make sure you have a plan to pay it back. USA Gov does not have a plan.

[@exapplerrelppaxe7952]

What the heck, I’ll give it a shot. First of all, adjust everything to zero-inflation, interest rates, etc. If government spending grows faster than the world creditor class’s ability to finance it, the government will have to dramatically raise taxes or repudiate the debt, probably both. What that happens, goodbye current regime. At that point I wouldn’t worry about being poorer; I’d worry about living in an authoritarian society.

[@drewp.weiner2473]

Great lecture

[@bungeebones]

"No taxation without representation" needs to be brought up to date with "No taxation on us if we didn't agree to it by voting for it". Such a change would place the burden of debt repayment onto the current voters and not on future generations (that don't vote). Also, since contracts are not enforcible against minors (underaged participants) then legally, future generations who are forced to pay debts of previous generations have every legal basis to refute that debt. Let the present generation pay their debt off each year, particularly since the "money" is created with a keystroke anyway, then paying the debt each year is equal;ly that trivial. IT would, of course, create inflation but that, too, places the debt repayment upon the generation that voted for it. The current system places the debt repayment onto future generations who do not vote, did not contract to repay it, could not be held to the contract even if they did, and with the size of the current debt they may not even be born yet!

[@atsdroid]

I really liked your comment, Rob. I've been trying to wrap my head around what this talk (and the fact that governments sell debt securities to finance all manner of projects) implies about the concept of "no taxation w/o representation". I've come away from this lecture with the impression that without a fixed commodity money and very explicit/strict policy controls, government is only very weakly influenced by voter demands for fiscal restraint. Worse, once government has disconnected itself from the immediate value of money by replacing it with its own fiat standard, and to the parallel extent that a public market for its debt securities exists, individual voter incentives shift toward greater pursuit of rent-seeking opportunities (which can also aggregate at other political levels, e.g. states lobbying for federally-controlled largesse). At the same time, as a bloc, voters can continue to demand a low-tax environment and get it, for awhile anyway.

[@ricerealtor980]

Lefebvre Great comment! I call it "No direct taxation without direct representation!"

[@bungeebones]

@@ricerealtor980 I like that.

[@nathantrest2345]

Your chart and example near the end of the video reminds me of the social security debacle.

[@ricerealtor980]

We spend like there is an eternity, tomorrow, but we fail to ensure that the necessary liberties are in place to sustain the production necessary to pay for tomorrows debt. Our optimism today cannot anticipate the pessimism of tomorrow. Even the little red hen understood this stuff...

[@dumky]

Yes, in short, people who buy bonds win, they think they are getting a better deal that way then alternative actions, otherwise they would not do it. Murphy explains how they win.

[@slayerment]

Great presentation

[@dontaskmeimjustagirl...5798]

Yeah, Bob Murphy knows how to keep an audience interested. It's also nice that he's able to be open about his evolution of thought on the subject.

[@bungeebones]

The "we just owe this debt to ourselves" works fine as long as it includes the understanding that the money to pay the debt with money created from nothing is also inherited by the next generation expected to pay the debt. If the present generation created the 20 trillion we now owe and paid the debt down to zero there would be massive inflation that would wipe out the purchasing power of the pensions of the people that ran up the debt to begin with. That seems fair enough. But taking the power to create the debt payment out of thin air and replacing it with a principle of "austerity" on the next generation is, indeed, shifting the debt repayment unto a different generation than who created the debt.

[@dr.lyleevans6915]

But wouldn’t there be deflation, not inflation, if the debt was paid back? Because there would have to be that much less USD ($) in circulation by design. From there it is simply supply and demand.

[@bungeebones]

@@dr.lyleevans6915 Economic theory aside, it would be the end of debt slavery of non-voting, future generations and the taxing of them without representation. Quite a heinous act by one generation against the following ones and quite unforgivable. It probably will end with neither inflation nor deflation but, instead, ELEVATION... of the guillotine blade for the heads of all the old farts who didn't pay their debts EVEN THOUGH they created all the money out of thin air. They'll have no excuse for that (except theory)..

[@somemaden]

WoW!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

[@__teles__]

Yes, a government budget is exactly like a household. 2:45 Great to hear it said. So sick of MMT!

[@HoRostam]

only under a gold standard. If you suspend the gold standard, then it's not. Households can't pull millions out of their ass to go fight the nazis.

[@ryanbeck7166]

But it's not. That analogy doesn't work. For Austrians to continue to spread this lie, is fraud. Have you seen Bob debate Mosler? It didn't go well for Bob. kzbin.info/www/bejne/mYa3fXZ6d7SBpc0

[@marengoczar5035]

It's not like a household....maybe in a static world.

[@balazsfoldes4700]

Economists make these simplistic, theoretical models which use theoretical people that only do 1 thing, and "IOU"s, and 1 type of goods, and use the predictive capabilities of those models to run the country. Worst canse scenario if the "man on the streets" is wrong: The government spent less money than it possibly could have. Worst case scenario if the "economist" is wrong: The country goes bankrupt. I don't see how you could use such simplistic models to make predictions about such complex things as countries and economies.

[@shareefcondon]

If govt borrows from itself, , deficit, no need to charge interest.because the credit is created ex nihilo. But, it has to be invested productively, to expand the economy, so the return jusifies the debt. If not, the govt deficit floods the economy , then over inflation, low wages , unemployment, then there is a problem for future gen., .

[@dwaindibley4137]

U.S. debt is denominated in U.S. Treasuries. U.S. Treasuries are redeemable in U.S. legal tender at any Federal Reserve bank. The Fed must post the treasury security as collateral in order to get the legal tender from the Treasury as payment. Treasuries held in this manner are considered paid in full. If you want to pay down the national debt, then you can start by withdrawing your legal tender money from the banks. Federal Reserve notes represent a first lien on all the assets of the Federal Reserve Banks, and on the collateral specifically held against them. carl-random-thoughts.blogspot.com/

[@patakainstitute346]

If our grandkids want $, they just do what we do with the same spreadsheet. Taxes are NOT used to fund Govt, taxes are used ensure the Govt can drain reserves to prevent inflation while it issues the $US, taxes fundamentally are there to create buyers and sellers of goods and services in that currency, ie the public sector. To ALL Austrian's, you would be 1000% correct if we were still on a fixed exchange rate....we are not, so you are 1000% wrong. Austrian Economics WAS a great school of though prior to 1971!

[@gregstech789]

Gotta be tuff being krugman

[@patakainstitute346]

Mr Murphy, simple break into the FED, open up the excel spreadsheet, you will see the Govt Debt is simply sitting in the spreadsheet as 'Treasuries', ie savings of US citizens and others from around the world. If it worries you so much, simply pop a tweet out saying the Treasuries Market no longer exists, and you will be giving their savings back to them, plus interest. Then you just take the keyboard and debit those securities accounts by typing in '0', and credit the Reserve Accounts (Check Accounts) of all those by savers by typing in the number that used to appear in the Treasuries Accounts. They're ya go, problem gone. Govt Debt is simply what Govt has invested into the economy that has not yet been used to pay taxes, ie the $ stored as people's savings in Treasuries or Govt bonds. The moment Austrian's like yourself realize you would be 100% correct if the US was on a gold standard or fixed exchange rate, but because the US and most of the world is not on a fixed exchange rate, you are 100% wrong in your fear of Govt Debt. Govt Debt is Private Sector Savings, the private sector including the foreign sector. Austrian's should rename their school of thinking to 'The Institute of -We used to be correct, when we were on a Gold Standard-.

[@diegomorales8616]

Some people argue that this assumes the debt has to be repaid, so just keep growing the debt. What they overlook is that once debt service exceeds tax revenue, the debtor can't pay interest payments never mind any principal. Hence, default--either honestly or via inflation.

[@ryanbeck7166]

Diego Morales Then write your congressperson and tell them to change the law. The federal government does not need to sell bonds, so why continue to do it?

[@lowrydan111]

Bottom line, economists use simplistic models with bad assumptions to prove their theories / support political platforms.

[@HeroForOneDay]

Murphy didn't disprove Abba Lerner. Lerner claimed that on the whole, debt doesn't matter because we owe it to ourselves. Murphy showed in his numerical example that some generations will eat exactly 200 apples, some will eat less than 200, and some more than 200. So some generations win and some lose, but on average there's no change.

[@atsdroid]

The effect time-shifts the burden to the future. So the losers will become the youngest and the unborn, from the present perspective. And as time advances, from each new "present" the analysis reveals the new losers then to be the new youngest and those yet unborn. But as the burdens accrue to these future generations, the ability of those to maintain themselves in a sufficient condition to give birth to the next generation erodes. We've already been seeing and feeling that in the present. While the rate of growth of labor productivity has thus far helped to mitigate the damage, cost-of-living pressures the future generations to become smaller in number. And so the problem compounds not just in the interest sense, but also in a demographic sense: an ever larger burden falling on an ever eroding tax base. This will eventually cause the public market for the debt rollover to collapse. At this point the gov't will transition more and more to monetizing the debt buy selling it (permanently) to its central bank. And the currency inflation runaway is precipitated.

[@Antistate]

Ok, then, if there is „no change”, let’s make a deal: I will borrow money and You will pay my debts. Debts does not matter, so you should not mind.

[@tipuuu6749]

This is crazy who's not paying taxes here ? He's talking about 2050 people can't afford now

[@jackgoldman1]

Should we let losers, who refuse to work or do their home work, die, as nature does in the real world where animals die?

[@keganspeed4581]

The better question is should we feed and shelter losers enabling them to stay losers? Or should we shrink the burden of gov so its easier for a loser to provide for themselves?

[@poxpower]

I won't stop you from saving as many as you want with your own time and money. Feel free to call me an asshole for not helping you.

[@b4u334]

Does your model assume that the economy doesn't expand at all and quality of life remains constant? Because a capitalist economy is not a zero-sum-game.

[@bobtoner9820]

Running deficits is irresponsible. If it doesn't make sense for the individual why would it make sense for a group of people.

[@henrygustav7948]

Fallacy of composition. What works on the individual level does not necessarily work on the macro-level. Its the other way around, not running deficits is irresponsible as long as we are a net importing nation, the Fed govt must deficit spend enough to make up for the dollars leaving the economy, otherwise unemployment is the result. You can see this with US sectoral balances. Federal governments deficit spending is income for the economy, results in a surplus for the non Govt sector.

[@bobtoner9820]

@@henrygustav7948 Sorry I going to stick to the notion that it's better to not be in debt and live within your means.

[@henrygustav7948]

@@bobtoner9820 This is why the US has so many people impoverished in the so called wealthiest country on Earth. Propaganda has people believing the Federal govt should function like a household.

[@bobtoner9820]

@@henrygustav7948 Well as you point out the Federal government doesn't function like a household and so many are impoverished. Perhaps household economics would offer an improvement

[@henrygustav7948]

@@bobtoner9820 After WW2 economists had a better understanding of how to manage an economy until they starting pushing out hard propaganda in the 70's with Reagan and Thatcher running around saying there is no such thing as public money only taxpayer money. With this, they pushed out a slew of lies, equating Govt finances to household and business finances. Making people believe the Fed govt should balance its budget, its overspending, its going broke, its inflationary, its something your grandchildren will have to pay for eventually. They did this in order to push people in the economy to go into debt with mortgages, car loans, credit cards and more so that banks could make obscene profits. By cutting deficit spending, which is income for the economy, you force people into taking out more loans in order to consume. There is empircal data for this.

[@alfajuj]

His voice reminds me of Joe Rogan

[@hithere7433]

very muddled presentation.

[@CarrotCakeMake]

It is a very muddled subject. Confusion is one of their weapons.

[@christinemarie6976]

What's this "we" stuff, Kemo Sabe? It's the Fed who holds all the bonds though, so we are making future taxpayers poorer while we make future Banksters richer.

[@abramgaller2037]

That is true .

[@keats182]

The great lie of the Democrat party is that they're borrowing and spending money to help the poor by "spreading the wealth around." What they're really doing is pulling money away from the poor and middle class to concentrate in the hands of a select few.

[@abramgaller2037]

For every quarter that is distributed by the government to the poor ,there is approximately a dollar fifty taken out of salaries.

[@10revver01]

Indeed! And this is precisely why DEBT DOES MATTER! Thank You! The banksters and the political class that are allowed to print their promises out of thin air while building an army of pensioners (voting bloc) that siphon the productive effort of the private sector. Small business is being destroyed as we speak by self-aggrandizing politicians that have a monopoly on the 1st amendment...ever hear about the actual struggle of the small business person in the media...or just the "fact" that they are the oppressors...

[@eze2576]

You are making an argument of definition with regard to the use of the word "we" and you are making it more specific for reasons that are not important to the argument being made. That is because the argument is saying that as long as the banker and the pauper are Americans, it's a wash. In other words, as long as the future banker and taxpayers are both Americans, then it's a wash. Let's say the future banker would normally have had 100 apples, but thanks to the debt previous generations incurred, now he's making 110 apples and the taxpayers have 10 less so that they only have 90. The argument they would make is that it doesn't matter because the overall economy still has 200 apples. The scales have tilted a little bit one way, but overall there is no net gain or loss. Not in the eyes of the taxpayer of course, but in terms of the overall WE, which includes everybody, both the bankers of your example and the taxpayers.

[@shareefcondon]

Murphy's equilibrium:, He said nothing, so it doesn't matter..

[@laskji]

"It's the same thing as it is for a household" (2:45). No... no it's not. The government is the sovereign issuer of its own currency. A household does not issue currency. This is a BIG difference.

[@PittsburghHODLr]

Almost, because the govt doesn't actually print the money since the fed is privately operated and owned.

[@Mesjach]

As much as I appreciate the economic thought behind it, I think Rob is terrible at teaching or explaining things. He repeats himself sometimes 3-4 times and goes in a lot of tangents, forgetting where he ended his thought, then repeating it again and progressing only slightly before spinning off again. I believe this lecture easily could've been 10 minutes, which would allow for clarity of information, not to mention saving a lot of time so you can watch it 4 times.

[@kenzeier2943]

Lots of listeners agree.

[@mdburk9396]

Your "...tangents..." comment is more than relevant. I myself become confused because of it

[@sebastiangabrielrodriguezi5339]

he has to learn about debt... really... in 2018 the state does not pay interest in his own example!!! he does not know "the basics"

[@austinbyrd4164]

They literally pay interest to bond holders, but the thing is that many are forced to buy bonds. Central banks even buy theirown bonds along with eachother's. So even when/if rates go negative in the us, that's just an alternative form of taxation. One that has to be corrected because of the malinvestments caused by cheap money. Look at china for example. Their asset bubbles got so bad they have entire ghost cities from bloated real estate lol.

[@sebastiangabrielrodriguezi5339]

​@@austinbyrd4164 In his example, the bonds do not pay interest and therefore are sold under par... then he includes interest payment and the new incrised debt... his example is wrong. Regarding debt, taking it to pay current expenses is idiotic. He avoids debt for infrastructure and long-term investments

[@warrennewcombe4695]

this is great within a closed system as in a country but we live in a whole world. If the whole world are not involved the apple theory does not work. the exported products will be the only measure of wealth for a country. Long term with a good system you need exports to keep your standard of living

[@keganspeed4581]

warren newcombe, the world market makes no difference. A household needs to spend less than they take in or they go in to debt. That is not a good thing. Same for governments. The only debtors really should be entrepreneurs who create capitol goods and services on the market using a profit and loss calculation. Government does not have a profit and loss calculation so its almost always a loss. Or at least there is no way of knowing if it was a gain.

[@markschroter2640]

It took that long to figure out taxes were the problem....This may be may last Murphy video. Taxes are immoral, any discussion to the contrary falls short.

[@ricerealtor980]

I love all the "muddled presentation" comments. I'm waiting to see a better presentation from you... lazy!

[@kenzeier2943]

That’s a false argument. Murphy made the presentation. It’s fair to listen and comment.

[@lorizoli]

Frankly, One of the most important factor ina speaker is 'Spunk'. If you haven't got the momentum, it doesn't matter how well though through your argumnet is, I'll still fall asleep.

[@keats182]

Glad to hear your public education has served you so well. Not everything in life is going to be entertaining.

[@stuartdoyle4373]

Can you explain Krugman's position one more time? The six consecutive explanations just didn't do it for me.

[@se7ensnakes]

ha ha ha ha who holds a bond for 100 years? is this guy on drugs or what?

[@lowersaxon]

NO. I think I’ve read Mr. Murphy’s critique of neoclassical interest=MPK theory ca. 15years ago. To my mind no valid critique , he failed. Same here.

[@gonza_mmt]

Economist should learn monetary accounting. Govt debt is just the money supply.

[@barrycalvert8219]

And this is what Economists do ? WTF... What about the working guy ? Oh yea ! We don't care ! Stock of the debt expands, oh, OK ! WOW, no wonder rich people feel like they are not doing anything bad, pay a guy like this to muddy it for ya and sound oooooooooooooooKKKKKKKKKKK !

[@neilevan1871]

These kinds of lectures are very misleading to those wanting to study economics at a university.

[@DheerajBhaskar]

how exactly? I'm curious to know

[@freebert7383]

Not a good presentation: Constantly verbalizing your thoughts is a distraction to the presentation : Constructive criticism : Do a hard OUTLINE, stay on track. Breathe..

[@ricerealtor980]

Free Bert I like his style. He tries to put a comedic spin on such a dry topic as economics. Go listen to dry guy...

[@kipperedbeef2084]

maybe distracting for people with adhd but not me...I like his distractions

[@gpl211212]

is this talk for second graders??wtf.

[@patakainstitute346]

The Govt is NOT a household!, OMG....go back and try for another epiphany...OMG was Mises this thick? A household is income constrained, a Govt is NOT, the Govt IS the income. Govt is the sole issuer of the $US, which is the only thing accepted in payment of Taxes, which is ONLY enforced by Congress/Govt, the $US cannot legally come from anywhere else...can a household legally issue the $US? YES it can, then that Household and anyone aware of what that household was doing, will all go to jail after being nailed by the Secret Service for counterfeiting!!

[@gonza_mmt]

Why doesn't Mises Institute accept women as students?

[@Bamometha]

With all due respect, this man is a terrible presenter. Likeable, but simply terrible.

[@keganspeed4581]

Bamometha He is no Tom Woods but terrible is a long stretch

[@kipperedbeef2084]

not that bad imo