If fiscal deficits are the result of a dole or current consumption such as a world fair, the current generation enjoys the benefits and its progeny ends up paying the bill.
But when spent for infrastructure, public health and education, the funds are an investment which are especially timely because: (1) they put people back to work, and (2) they do not compete with other potential uses, which means they fend off deflation and do not add to inflation.
Let’s look at an example. According to Wikipedia:
“The [Pennsylvania Turnpike] was partly constructed on an unused railroad grade constructed for the aborted South Pennsylvania Railroad project, and six of its seven original tunnels (all except the Allegheny Mountain tunnel) were first bored for that railroad. The construction began in the 1880s but was never completed. A combined total of 4.5 miles (7.2 km) of tunnel had been dug through seven mountains…”
The first section was built during the Great Depression. That meant that workers had jobs who otherwise would have been sitting at home, a waste of their labor. Furthermore, they in turn spent their pay checks, generating jobs for others. The ‘multiplier effect’ was likely around 3 to 1, which means each dollar spent on the Turnpike generated three dollars for the economy, thus putting others to work.
Technically, spending hundreds of millions on the Turnpike created a deficit for the state. The state sold bonds (through its Turnpike Authority). Future generations of drivers who chose to pay tolls on the Turnpike rather than use Rt. 30 helped pay for the Turnpike. They were not exploited by their predecessors. They received good value for their money.
The Turnpike is a clear example, but the same would be true for say I-80 if built during a recession. One generation builds it and financing it with bonds….thus creating a deficit. Future generations drive on it but, instead of paying tolls, they pay through higher taxes. Same result.
It is a canard to say that deficits are an imposition on future generations. When the money is spent wisely and for the benefit of future generations, ‘deficits’ are but investments. Buy a house, you run a deficit. Live in it for twenty years while you pay off the mortgage, you benefit from your monthly payments. It’s as simple as that.
The true costs of a recession or depression are the goods and services lost while people sit idly by because of lack of work. Investments in infrastructure, be it roads, schools, education or the like, are not an imposition on the future generations…they are benefit.
