Mortgaging our children's future

"Some years ago, The Wall Street Journal ran a cartoon that goes to the essence of the matter.

- BOO CHANCO

A small child is coming home after getting off a school bus. As he opens the door to his house, he shouts to his parents, 'What's this I hear about you adults mortgaging my future?'"

"I like this cartoon not because it's funny (it's not, really) but because it succinctly summarizes the economics of government debt. Courses in macroeconomics examine how government debt affects interest rates, capital accumulation, trade deficits and so on. But the starting point for all that analysis is a transfer of income between generations."

"In their personal capacity, parents cannot choose to live beyond their means and leave negative bequests to their children. As voters and citizens, however, parents can do exactly that, and Americans are now doing so in a big way."

That's how N. Gregory Mankiw, an economics professor at Harvard University, opened his recent lecture on "The Fiscal Future."

The lecture was about the US debt, but a Filipino can strongly relate to the points he made about the need to sustainably manage the national debt.

They are very concerned about where they are going with their national debt. Dr. Mankiw observed that for the US, the trajectory of their growing debt is not so benign.

"According to the 2025 projections of the Congressional Budget Office, the debt-to-GDP ratio will, under current law, continue to rise over the next three decades, reaching 156 percent in 2055. There is, moreover, no end in sight to this increasing indebtedness."

"Even more worrisome, this projection is optimistic. It assumes that the US economy will experience normal economic growth, without a crisis like a major war, a deep recession, or another pandemic, which would push debt even higher."