From the comments on this post:
the entire discussion is about accounting for “money” which while very important is not the same as real output.
Let us assume, as a first approximation, that real output is the same, regardless of the path of the government budget. In that case, we are talking only about distribution issues. Kotlikoff tends to worry about the intergenerational distribution. We may be on a path in which Baby Boomers consume a lot, and their children and grandchildren are taxed heavily to pay of this.
My own concern is that the distribution issues cause damage to our social and political fabric. We set ourselves up for ever-increasing strife. Please re-read Lenders and Spenders.
Yes, in all seriousness, you cannot reiterate your lenders and spenders point often enough. It is the single most neglected point in all of the fiscal policy debates.
“My own concern is that the distribution issues cause damage to our social and political fabric. We set ourselves up for ever-increasing strife. ”
That sounds like a surprisingly progressive set of sentences. You could imagine the next line being “therefor we need to level the playing field with progressive taxes/wealth taxes/inheritance taxes/social welfare/middle class subsidies/etc.”
That’s all very fair. And distributional issues, especially those that arise from impossible promises, are indeed of great import. (Witness the troubles befalling Detroit pension beneficiaries, pension lenders, or both.)
I seek to articulate (perhaps poorly so far) that even if government has no debt in a money sense, it can still fall very short in it’s ability to fulfill it’s explicit and implicit promises to beneficiaries. Who generally will have trusted it (perhaps having no choice) for very long periods of time.
I think this issue arises because money is some ways durable, while the output of the economy is on the whole perishable. Most government promises are in effect durable.
And so the government of the toy corn state might tax Lois and Sammy each 1/2 bushell of corn per year, which they pay not with actual corn but with a voucher for corn. And it might save these vouchers carefully, alotting an adequate number of them for each future year of promised corn benefits. And so in the year 2035 it has 8 bushels of corn vouchers on its books, and has promised Lois and Sammy 4 bushels each that year. It’s books are in balance, the accounting is correct, it has not in any way monetized debt. But if the total output of corn that year is only 3 bushels, those 8 bushels of corn vouchers will not meet Lois and Sammy’s expectations.
A real world outcome I view as somewhat likely is that in say 2040 the US is solvent and functional, inflation reasonable, and social security benefits are paid on schedule. But that the demand and social security dollars available for beneficiaries to spend goods and services consumed only or mostly by retirees far outstrips the supply of those goods and services. And so retirees might find that for example bananas are easy to afford in adequate quantity while home health aids are impossible to hire, even though their pension and savings are sound and denominated in sound money.
In other words, your state can have a balanced budget but still find itself in a crises over distribution in the future, regardless of what it does now.