I have just moved house, and while doing so I discovered a bunch of old books that my brother had loaned to me. One of these was the Foundations of Economic Thought (1990) – a good title, so I figured I’d give it a bit of a read.
Within the book is a series of self-contained essays which mix economic history with economic ideas and methods – I am a big fan of this sort of thing. I’ve just been reading the essay “the debt burden” by Brian Hillier and M. Teresa Lunati. In this essay they discuss the issues I was trying to get across to a general audience in the series on tax, specifically in my last post. In the final post I make the point that borrowing is really another form of broad “taxation”, but as when discussing different types of taxation we are asking where the burden lies.
However, the quote I’m going to pull isn’t directly about that. It is about the use of the word burden.
Recently Russell Norman caused a stir by getting annoyed at the use of the word burden (although he uses it himself), and Manski also got wound up about the idea of deadweight loss and burden. As with all the economic debates we have, this one isn’t new. After pointing out that there is a gross burden associated with switching from tax to debt finance, the following quote filled with quotes is made:
Thus it may be going too far to say that ‘politically persuasive terms such as “burden” … have no rightful place in the vocabulary of economics’ (Mishan, 1969, p. 85). Rather it is correct to say that ‘borrowing … may be used to secure intergenerational equity by passing on part of the cost of capital outlays to the future’ (Musgrave and Musgrave, 1973, p. 603).
Although this quotation disagrees with Mishan, it does not disagree with the fact that to produce output now we need to use current resources, irrespective of the type of funding! However, the type of funding both shifts the final allocation of the burden of paying for the resources (resources that come with the benefit of their provision as well!), and by changing the nature of investment in capital and labour provision these choices may in term have a broader impact on output.
Mishan does raise another key point when it comes to looking at burden:
if we are prepared to talk of an additional ‘burden’ being suffered by future generations whenever we are led to consume some part of current output rather than accumulate it (and thus enable future generations to enjoy a larger stock of capital goods, and so increase their consumption), are we not entitled to talk of a ‘burden’ being imposed on the present generation when, instead, we reduce our consumption in favour of increased consumption by our grandchildren? (Mishan, 1969, p. 83)
Those who would push us towards saving more and more and more to increase future output and future GDP would do well to keep this in mind – there is a cost to sacrificing consumption now, a cost you are imposing on people currently.