I want to expand a bit on something Dean Baker said yesterday:

As a country we cannot impose huge debt burdens on our children. It is impossible, at least if we are referring to government debt. The reason is simple: at one point we will all be dead. That means that the ownership of our debt will be passed on to our children. If we have some huge thousand trillion dollar debt that is owed to our children, then how have we imposed a burden on them? There is a distributional issue — Bill Gates’ children may own all the debt — but that is within generations, not between generations. As a group, our children’s well-being will be determined by the productivity of the economy (which Brooks complained about earlier), the state of the physical and social infrastructure and the environment. One can make the point that much of the debt is owned by foreigners, but this is a result of our trade deficit, which is in turn caused by the over-valued dollar.

I think it’s worth looking at some numbers here.

Below are two series, both expressed as percentages of GDP: total domestic nonfinancial debt (public plus private), and U.S. net foreign debt, as measured by the negative of the net international investment position:

What you can see here is that there has been a big rise in debt, with a much smaller move into net debtor status for America as a whole; for the most part, the extra debt is money we owe to ourselves.

And here are the same numbers, measured as changes from 1980, so that you can see that the great bulk of the rise in debt was not financed by foreign borrowing.

People think of debt’s role in the economy as if it were the same as what debt means for an individual: there’s a lot of money you have to pay to someone else. But that’s all wrong; the debt we create is basically money we owe to ourselves, and the burden it imposes does not involve a real transfer of resources.

That’s not to say that high debt can’t cause problems — it certainly can. But these are problems of distribution and incentives, not the burden of debt as is commonly understood. And as Dean says, talking about leaving a burden to our children is especially nonsensical; what we are leaving behind is promises that some of our children will pay money to other children, which is a very different kettle of fish.