The rapid aging of the population means that deficits and debts are on route to blast in the coming decades. The consequences of such high and rising debt could be significant. It is sometimes claimed that debt financing of current expenditures leads to a burden upon future generations of the society. Firstly, whether debt financing necessarily imposes a burden or a sacrifice upon the future generations; and secondly, whether it is possible to make the future generations contribute to the present utilization of resources through debt financing. And through debt financing, it is the present generations which suffers a loss of resources and the future generations will suffer if the present generation reduces its savings to meet the debt finance and thereby leaves a smaller amount of capital resources for the future.  

In reality, current financing, say, a war, reduces resources today itself. The present generations, therefore, either has to reduce its consumptions or savings or both. When, however, savings are reduced the future generations also suffer on account of reduced inheritance of capital shock. Also be noted, the burden is being conceived in terms of reduced consumptions availability i.e. which the present generations is making the next generations share with it. If the economy is already having full employment and the government increases its own expenditures, this will necessarily reduces either private consumptions or investments. Now since the government is financing its operations through borrowings, and borrowings mostly coming from savings, therefore, the capital shock of the future generations will be reduced. To a lesser extent, the same effect will hold even when the economy is working at a level below full employment. In underdeveloped/emerging countries, especially, public debts may be raised with the specific intention of increasing investments and capital shocks. To a smaller or larger extent the same may be the plans of developed countries too.

Losing a material part of the income in an economic situation where the government debts and the interest payments for it are crowding essential investments like healthcare, social security benefits and education. The growth in our community that we see today will be heavily impacted by the national debt. Continued borrowing to finance tax cuts or spending for consumption today creates an increased burden on young and future citizens. A child born in Bangladesh today will immediately inherit almost $1,540 of national debt. While that debt will never need to literally be paid back, it nonetheless has costs. Slowing income, rising interest rates, and declining fiscal space all cumulate over time. At a minimum, younger and future generations will face an increasing interest burden, and debt service will continue to climb. Indeed, rising interest costs may already be adversely affecting future generations.

Rising debt slows income growth: One key outcome of rising debt is that it slows economic growth, which in turn slows the growth of wages and income known as crowding out effect, whereby investors purchase government debts at the expense of making productive investments in private capital. Less investment ultimately means fewer buildings, machineries, equipments, and software and even fewer new ventures or technologies. As a result, workers’ productivity growth will suffer, and ultimately income and wage growth will slow. Over time, lower investment leads to slower income growth. With income growth already expected to slow, it would be unwise to further worsen this trend by increasing the national debts.

As government debt rises, so will the cost of servicing those debts through interest payments. Interest payments already consume every dollar raised by the corporate income tax, the estate tax, gift taxes, and excise taxes. The more paid on interest, the less that is available to fund other priorities or the more that must be raised through additional taxes or borrowings. Rising interest costs mean less opportunity to invest in the country’s future, combat important long-term threats like climate change, maintain a strong national defense, or enact important new social spending and tax relief. Every dollar spent on interest is a dollar unavailable for something else.

Another important consequence of rising national debt is the overall increase in interest rates throughout the economy. As the government issues more bonds, lenders are likely to demand higher interest rates to compete with other investment opportunities. These higher rates are likely to pervade through the rest of the economy, increasing the interest costs associated with mortgages, car loans, student loans, and credit card debts.

During economic recessions, as well as wars and other emergencies, it may be necessary or even desirable to run large deficits. Yet the higher deficits and debts are in advance of a recession or crisis, the less fiscal space a country will have to finance or combat that crisis. Importantly, less fiscal space could also make it harder for the country to address new challenges and opportunities. Our government is unlikely to face a fiscal crisis anytime soon, but if debt continues to rise and it becomes increasingly clear that trend will not reverse, the risk of a crisis will grow. Endless deficit spending, tax cuts, and refusal to make the tough choices of what to prioritize will eventually lead investors to question our creditworthiness. Alternatively, a fiscal crisis could take the form of rapid inflation.

In conclusion, therefore, we may say that public debts even taxation, will put a burden on future generations if two considerations are satisfied; firstly, the current generations does not reduce its savings, and, secondly, the government does not add to the capital shock and productive capacity of the country. The thinking on the possibility of shifting debt burden to the future generations ignores the economic implications and ill effects of the debt trap in which the government may find itself. This is a manifestation of real burden which is worth avoiding. In reality, when one acknowledges that the national debt need not and will not ever be repaid or extinguished, a totally different picture of the burden of those debts arises.

The writer is a Certified Finance Specialist