Can We Compare Government Debt to Personal Debt?

The Alberta government just released its budget yesterday and it includes a $2B deficit as well as borrowing over $4 billion for infrastructure such as schools, roads, etc. There was a tweet that came out shortly later that framed the deficit and debt as essentially a tax on future generations. I retweeted it and shortly thereafter received a reply from a friend suggesting more nuance was available in 140 characters. The original tweeter then cautioned my friend not to confuse “personal debt with forced government debt”.

This brief twitter conversation got me thinking, especially because I heard my analogies on the news and in social media specifically making that exact comparison. Can we appropriately make this comparison and what is the appropriate way to understand the role of debt with regard to its impact on future generations?

First a few arguments why the comparison is fallacious. When we incur personal debt it is so that the individual incurring the debt can enjoy or make use of some good or service sooner rather than later. This is the logic behind incurring debt to purchase a house. By the time you have saved enough to pay for the house you will be near retirement and barely able to enjoy the house.

On the business side of things, you might incur debt in order to start up a business. The maxim “you need money to make money” is applicable here and you incur debt in order to make more than what you borrowed thus making you and the bank (hopefully) both better off.

Yet what both of these simplistic examples have in common is that the individual incurring the debt is the one who will eventually pay it off. Can this be applicable to the context of government that operates ad infinitum? The central point is that a distinction must be made between payment and usage of any good. As a result, we don’t expect debts incurred by a government to be paid off by that same government – often they don’t last that long. Here the most comparable analogy would be the business model as many businesses are also designed to last generations (hopefully). In that case it becomes a question of how onerous the payments will be. If the debt is so high that a significant amount of the budget is set aside merely to make the interest payments, then that could be deemed excessive and constraining. If, however, you are Alberta and have just recently paid off your debt, then taking on a little for the sake of infrastructure investment seems a prudent course of action.

Yet in the end, the point about debt being a tax on future generations seems more a poignant rhetorical jab than anything else. Much of the debate leading up to Alberta’s budget had experts, economists, and public opinion polls arguing for or demonstrating an openness to raising taxes in Alberta. Alberta is already one of the lowest taxed provinces in the country, is overly reliant on resource revenue as even the Premier admits, and refuses to increase taxes even slightly. The debate about Alberta’s finances begins with taking any tax increases off the table. Yet the money must come from somewhere. Making the un-nuanced, but rhetorically potent claim that debt is essentially a tax on future generations is an interesting point of discussion that Alberta needs to consider more carefully.

Or maybe I’m taking a couple tweets a little to seriously…

GS

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