Channels, Spring 2018

Channels • 2018 • Volume 2 • Number 2 Page 29 Grasshoppers will receive benefits from the present spending funded by government debt issue. Yet, they will refrain from issuing any bequests to heirs, preventing equivalence or neutrality from occurring. Thus, “public borrowing brings the possibility of making negatively valued bequests within the feasibility set, an alternative that is not readily available to people in their private economizing capacities.” 87 Barro’s results cannot hold, according to Buchanan, unless all benefits from lower present taxes and higher current government goods or services accrue to Ants. Buchanan moves to consider several specific scenarios of cost and benefit incidence for the Ant and Grasshopper model, but the overarching point is that a mathematical analysis of utility in an overlapping generations model does not accurately or completely map human responses to debt issue possibilities. Thus, Barro’s neutrality theorem does not provide a motivation for the issuance of debt in a situation of Ricardian equivalence, but, rather, a more accurate understanding of the different individual responses to debt issue reveals the importance of individuals who may desire negative bequests. Further, if the Ants who do experience utility gains from positive bequests are faced with a political choice between debt or tax finance, they may be indifferent as Barro proposes. This means that the Grasshoppers have the only clear incentive for political action in this field, presenting them with a path to political dominance as an interest group. 88 Thus, “even in a situation where a large proportion of persons may prefer to leave positively-valued bequests to their heirs, the implied opposition to debt financing may be overwhelmed” because of “the influence of interest groups over and beyond the interaction of voters”. 89 Buchanan showed that the behavior of individuals according to Barro’s model and expectations mitigates the impact of debt finance, but it is improper to assume that all individuals will uniformly conform to those assumptions. Buchanan Further Develops His Model – Public Choice This demonstrates Buchanan’s increasing integration of public choice theory into his public debt articulation. Rather than responding to the equations that Barro presents, Buchanan presents a different model that focuses on the motives of government action, the role of individual and collective incentives, and the political process. In the later stages of the debate over public debt, this use of public choice became increasingly prominent in Buchanan’s writings relevant to broader questions of public debt than his contention with Barro alone. Public Choice economics is very evident in one of Buchanan’s book-length works from this period, Democracy in Deficit: The Political Legacy of Lord Keynes . While he touched on several general critiques of Keynesian political economy, the title reveals Buchanan’s continuing mental focus on issues of public finance, as does the work’s contents. Indeed, he begins his critique of Keynes by quoting C.F. Bastable, a classical economist whose work 87 Ibid, 417. 88 Ibid, 425. 89 Ibid, 425.