Government spends an enormous amount of money on health care. On any given year, you can usually expect the federal budget for Medicare and Medicaid to be in the hundreds of billions. Now, of course, there is the possiblity of a $1 Trillion Health Care bill being signed into law. As with most government spending, the issue of massive federal debt and budget deficit raises responses like: 'future generations will pay', and 'taxpayers pay for it'. It is difficult for me to understand why this myth is so widely perpetuated. Indeed, we only hear slight mention of the truth: PEOPLE WHO SPEND DOLLARS ARE THE ONES WHO PAY. The fewer dollars you have the more you pay - I'll get to all of this in a moment.
Adam Smith has been quoted as saying "no government ever repays its debt". I think that most people have trouble believing this. Instead, I think that people actually believe that future generations will somehow pay for government's spending now. To really believe that, however, is to cling to some strange sort of hope that there will eventually be an excess of wealth in the future sufficient to repay all of the massive amounts of current federal debt. But you have to ask yourself, how could there ever be such a 'revolutionary' amount of wealth in the future? I can think of two possible sources: 1) some sort of amazing new technology which creates wealth through efficiency that trumps past technologies such as the "production line", the cotton gin, or the internet; and 2) conquering and plundering the wealth of another nation. I certainly don't think the second way is the "way to go". I don't think anyone can know whether the first will happen or not but I would say it doesn't seem like something we can really count on.
So this is why I don't think it's true that government spending now will be paid for directly by future generations - they will likely never have the wealth to repay this debt. And taxpayers don't really pay for it directly because taxes do not bear any correlation to payment of the debt - this is why taxes increase yet the debt gets even bigger at an even faster rate.
Instead, it is paid for by anyone who uses the U.S. dollar.
The easiest way to understand this is to start off with a definition of monetary inflation. I'm defining it here as an increase in the supply of money. You can find other definitions of inflation but people get confused with this economic concept and botch the definition.
Another key concept is the law of supply and demand. A basic tenet of economics is that as supply increases, demand decreases. This applies to dollars as well. That is, as the supply of dollars increases, the demand decreases. This is what has been happening (and will continue to happen - I get to that in just a second).
The problem here is that as demand for the dollar decreases, it means people want it less. So, in order to purchase something, in general, one must provide more dollars to satiate the seller - because, the seller doesn't want the dollar as much anymore. There is an inflated supply. There are more dollars in circulation, they are "not as impressive" anymore, so it takes more of them to perform a "trade" or purchase.
People who tend to buy luxury goods will not be nearly as adversely affected as those who only buy, or at least try to buy, necessities. So, although I say all dollar spenders pay for government debt, THE POOREST PAY THE MOST as their dollars hold less and less and less sway in purchases.
The link between increasing government debt and monetary inflation is that the Federal Reserve Bank (the government bank a.k.a "The Fed") engages in something that is commonly referred to as "printing money". Essentially what the Fed does is "lend money" (money it doesn't have) to the U.S. Treasury (under the strange notion that, when it gets the money, the Treasury will pay back the Fed - so, in other words, the government lends money to itself and then later pays itself back). Because the Fed never actually had the money to begin with, it gets "printed". The more debt, the more money they print, the more money in circulation, the more EVERY DOLLAR SPENDER PAYS.This will continue to happen because government debt and spending is already so tremendous and therefore growing with unbelievable interest payment, that the Fed will have to continue to print increasingly greater amounts of money. The end result is a decline in what people can afford now, in years to come, and genereations to come.
