The last few generations should be forgiven for living beyond their means. The spending felt good, and there seemed to be no price to pay for the profligacy.
But there is a price to be paid, and it would help the debate to understand it more clearly.
Pretend that your family owns a very good business that provides an above average income to family members. Further note that each family member's income from the business increases, net of inflation, 2 percent per year.
As a result, as the business is passed from one generation to the next, it provides a higher standard of living.
At some point the business passes to a generation we shall call the Profligates. They realize that they can spend even more, and live even better, if they borrow against the future earning power of the business. So they do.
They borrow and spend and then borrow and spend some more. Since the business is still growing no pain or discomfort is felt as more debt is added to the business. After some years, the debt equals the family income.
Now the business passes to the next generation we shall call the Grandchildren. They do not enjoy the same income expectation of prior generations.
The debt is so large that any increase in the family income goes to pay off the debt, so their standard of living does not increase.
Further, they must pay interest on the debt accumulated by the Profligates. So they have even less than prior generations did.
The Grandchildren rightfully blame the Profligates for this situation.
If you substitute Gross Domestic Product for "family income" and U.S. economy for 'business," you see that this little allegory is really about U.S. debt and deficits - and why we should care about them.
I don't want to leave readers in too optimistic a mood, so here is some recent economic research.
Carmen Reinhart (University of Maryland) and Kenneth Rogoff (Harvard University) co-authored a seminal book from which several highly readable articles (no calculus or regression equations) are readily available on the Web, including "Growth in a Time of Debt," from which I now cite.
Their study covered financial crises with data from 44 countries spanning two centuries.
They found that once government debt exceeded 90 percent of gross domestic product, economic growth slowed by at least 1 percentage point.
The U.S. debt to GDP now exceeds 100 percent.
What does that mean for the Grandchildren? Well, recall that U.S. GDP per person, adjusted for inflation, has historically increased at 2 percent annually.
This growth provided a gradually higher standard of living.
A newborn child of earlier generations would enjoy a doubling of their standard of living by their 36th birthday and another doubling by age 72. In total, a newborn child would see their standard of living rise four fold during their lifetimes.
If growth slows by 1 percentage point, the newborn child of the Grandchildren will only benefit from one doubling of their standard of living.
So we not only give the Grandchildren our debt to repay but also give them a slower growing economy with which to pay for it.
The next time you see a bumper sticker that says "Spending the children's inheritance," please don't laugh. Rather, reflect. It still may not be too late to reform our behavior.
Christopher Gable lives in Altoona.
