Consider two possible worlds:
World A: Us old people bequeath our government bonds to the next generation (as a freebie).
World B: Us old people sell our government bonds to the next generation (they pay us for the bonds).
See the difference?
In world A the next generation inherits the tax liabilities inherent in the bonds, and really does inherit the bonds too. It gets given a liability, and gets given the corresponding asset too.
In world B the next generation inherits the tax liabilities inherent in the bonds, but does not inherit the bonds. It gets given a liability, and does not get given the corresponding asset. It pays for the corresponding asset.
World A is the world of Barro-Ricardian Equivalence, where government debt has no intergenerational distributional implications.
World B is the world of Buchanan and Overlapping Generations models, where government debt does have intergenerational distributional implications.
World A is not Paul Krugman's world. Paul is not a fan of Barro-Ricardian Equivalence. So why does Paul suddenly switch to talking like someone who believes in Barro-Ricardian Equivalence when he says:
"Antonio Fatas, commenting on recent work on deleveraging or the lack thereof, emphasizes one of my favorite points: one of my favorite points: no, debt does not mean that we’re stealing from future generations.
Debt has distributional implications, and it may have macroeconomic effects because of those distributional issues. But again, all this is within the current generation; it’s not about the present versus the future."
"And the problems with public debt are also mainly about possible instability rather than “borrowing from our children”. The rhetoric of fiscal debates has been, for the most part, nonsense."
Even in: a closed economy; with no investment of any kind; and purely lump-sum non-distorting taxes, we can take apples out of the mouths of yet unborn future generations, and eat them ourselves. Time travel is possible.
Or, ignore me. Listen to Simon Wren-Lewis get it right.
Ours the task eternal.
(Antonio Fatas, by the way, is correct in saying that if the government issues debt to buy real assets, and if future generations inherit (as a freebie) those real assets as well as the tax liabilities inherent in the debt, it can all cancel out.)