Generational Transfer

by digby

Saint John McCain (R-Get Off My Lawn), the man who claimed the economic fundamentals were strong on the day Lehman failed, is at it again with his “generational tranfer” trope. And CNN is trumpeting it as some sort of serious critique.

I emailed them this, from the last time McCain babbled about this:

The basic story is that the borrowing is making future generations richer, not poorer. The stimulus will increase GDP and therefore increase investment, since companies will invest more in plant and equipment, if they see an increase in demand. This private investment will increase the economy’s productivity, thereby making our children and grandchildren richer. In addition, much of the spending in the stimulus will directly increase productivity, such as money for retrofitting buildings to make them more energy efficient, putting medical records on-line, or increased funding for college education.

The debt that will be used to pay for this will be an asset for at least some of our children, since at some point we will all be dead and our heirs will have possession of the bonds we hold today. (The fact that China and other foreign countries own some of the debt doesn’t change the story. China’s buy U.S. assets to keep up the value of the dollar to preserve their export market. If they didn’t buy government debt, they would buy other assets, like stocks and bonds of private companies, which would result in a comparable flow of future income going to China. The problem here is the over-valued dollar, it has nothing to do with the budget deficit.)

It is especially remarkable that Senator McCain would make such a bizarre comment about “theft” from future generations given that they just have been handed an immense gift from the collapse of housing and stock prices. The decline in house prices means that they will be able to buy the nation’s housing stock for about $6 trillion less than they would have paid two and a half years ago. The decline in the stock market means that they can buy the country’s stock of productivity capital for about $10 trillion less than they would have paid two years ago.

The fact that Senator McCain could make such an incoherent complaint about younger generations being mistreated, after they have just seen a transfer of close to $16 trillion in wealth from older generations, warrants attention from the media. It is far more newsworthy than President Obama’s comment’s about “bitter” working class voters that received so much attention during the primaries.

It warrants attention from the media only if they can get it straight, which is unlikely. Otherwise, they should just ignore anything that McCain says on the economy. It’s not much different than paying attention to what the contestants on Make Me A Supermodel say about the economy.

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