Paul Krugman and the Myth of "We Owe it to Ourselves"

LvMIC:

Another Monday, another economic fallacy spread across the New York Times editorial page thanks to Princeton economics professor and Keynesian champion Paul Krugman.  This week's crime in logic?  The often used justification for government debt known as "we owe it to ourselves."  Here is Mr. "more Keyensian stimulus" in all his brilliance:

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.

First, families have to pay back their debt. Governments don’t — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.

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. (my emphasis added)

The "we owe it to ourselves" doctrine was popularized by economist and functional finance proponent Abba P. Lernr, who holds a special place in the hearts of Modern Monetary theorists.  MMT states that under a complete fiat based currency, governments are not revenue constrained as they have the ability to effectively print on demand.  While true as a point-of-fact, the idea that bureaucrats are capable of regulating spending, currency creation, and inflation through taxation places a superhero-like faith in "public" officials.
Writing in Man, Economy, and State, Murray Rothbard tackles the core theoretical issue with the "we owe it to ourselves" dogma:

The ingenious slogan that the public debt does not matter because "we owe it to ourselves" is clearly absurd.  The crucial question is: Who is the "we" and who is "ourselves"?
Analysis of the world must be individualistic and not holistic.  Certain people owe money to certain people, and it is precisely this fact that makes the borrowing as well as the taxing process important.  For we might just as well say that taxes are unimportant for the same reason.

Whenever the government borrows and increases the size of its debt, the burden must always fall on future taxpayers who are bound to pay for rollover interest payments.  The money isn't owed to "ourselves," it's owed to the creditors who are entitled to receive said interest payments.  As Rothbard also points out, public sector workers don't, in actuality, pay any taxes.  Such is an accounting identity where those in the government receive their income and a portion is withheld for tax purposes.  So while taxpayers are on the hook for the public debt, government workers are not.  The "we" Krugman is referring to does not consist of them.

The U.S. federal debt really is a crucial issue, which Krugman does admit, but not for the reasons of the debt alone.  Government incurs debt to finance its spending beyond what it takes in through forceful tax acquisition.  To reduce the debt, two things can be done: cutting spending to stop borrowing all together and make payments on the principle or a strict default on creditors.  Since politicians thrive off the purchasing of votes, the prospect of minimizing the flow of tax money to special interests spells disaster for the next election.  This makes cutting government expenditures, and hence reducing the debt, unlikely.
It also doesn't help when the Krugmanites of the world cry bloody murder at the very idea of cutting a single cent from the federal government's budget.  While Krugman is correct that many don't understand the nature of government debt, he is also guilty of the same charge.  Government debt, a necessary product of an addiction to spending, is a burden on all taxpayers no matter what the circumstance.