I visit Matt Yglesias' house (HT JeffreyY). I drink one litre of milk from his fridge. I write Matt an IOU for one litre of milk.
1. If Matt subsequently tears up that IOU, then I am richer and he is poorer. Taking the two of us together, in aggregate we are neither richer nor poorer if Matt tears up the IOU. Tearing up the IOU doesn't bring the milk back.
2. Therefore there is no aggregate cost to me and Matt of me drinking more milk from Matt's fridge and writing Matt another IOU.
1 is of course true. But 2 does not follow from 1. 2 is false.
We can't do anything about the existing stock of national debt. "It's no use crying over spilt milk", even if it was spilled down my throat rather than spilled on the floor.
But that doesn't mean there is no cost to spilling more milk. True, there's also a benefit, if I'm thirsty, and it's spilled down my throat rather than on the floor. But there's a cost too. If the government runs a deficit now, there is a cost to future taxpayers. Sure, there's a benefit too, depending on what the government does with the funds it borrowed. And we should compare those benefits to those future costs. But we shouldn't pretend those costs don't exist.
The existing stock of debt represents the costs of past deficits that cannot be undone. We can't turn back the clock. But the fact that we cannot turn back the clock on past deficits says absolutely nothing about whether we should run a deficit now. We need to compare the benefits to the cost to future taxpapers.
Matt Yglesias was defending Paul Krugman's recent posts on the burden of the past debt and the desirability of current deficits.
"Deficit-worriers portray a future in which we’re impoverished by the need to pay back money we’ve been borrowing. They see America as being like a family that took out too large a mortgage, and will have a hard time making the monthly payments.
This is, however, a really bad analogy in at least two ways.
Second — and this is the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves."