The national debt is discussed one-sidedly. A balance sheet analysis shows: The young generation also inherits enormous wealth. A guest post.
The young generation is practicing rebellion. The public debate gives the impression that the old generation, with increasing national debts, is only leaving behind burdens that they will have to pay back from general tax revenue in the future. Numerous economists are at the forefront of conveying this picture. For example, the economist Veronika Grimm castigates the behavior of the elderly as an “offense against the young generation”.
The latest data from the Bundesbank and the Federal Statistical Office confirm that the state was in debt of around 2.72 trillion euros at the end of 2024. But they also show that the state held tangible assets worth 2.96 trillion euros, particularly in the form of valuable infrastructure. He also had financial assets amounting to 1.66 trillion euros, for example in the form of stocks, loans or investments. Attention, young generation: The inheritance that the old people would have left you through the state sector alone at the end of 2024 consists of net assets of around 1.9 trillion euros.
This fact remains unmentioned in the public debate because most economists refrain from understanding the state in its balance sheet dimension, i.e. analyzing debts and assets like a company. But would you find it a burden to inherit the BMW company because it had liabilities of around 172 billion euros at the end of 2024?
The authors
Carl Ludwig von Holtfrerich is an economic historian and professor emeritus in the Department of Economics and the John F. Kennedy Institute for North American Studies at the Free University of Berlin.
Adalbert Winkler ist Professor of International and Development Finance, Frankfurt School of Finance & Management.
Now one can argue that the current discussion is not about past national debt, but about future national debt. However, the accusation that the old generation is exploiting the young generation through national debt has been made at least since the end of the economic miracle, when the ratio of national debt to gross domestic product rose significantly for the first time.
Two reasons explain why it was just as wrong in the past as it is today: Firstly, government debt that is taken out to increase the state’s physical capital stock does not change the state’s net assets because they have an equally large increase not only on the liabilities side, but also on the assets side. This also applies to private debts; Not least because of this, not only the state’s debts are constantly growing, but also those of the private sector – the latter, although many private households are trying to pay off loans taken out, for example to buy a home, within one generation in order not to leave any debts to the next generation. This is because the volume of new loans issued usually exceeds repayments.
Second, the young generation as a whole inherits not only the debts of the state (and the private sector), but also the claims on the state (and the private sector). This is also immediately noticeable when you read the balance sheet of the entire German economy. Neither the state debt nor the debt of private households and companies appear in this because they correspond to equally high demands. Germany’s balance sheet shows physical capital worth 23.5 trillion euros and net claims on foreign countries amounting to four trillion euros.
As of the end of 2024, Germany’s young generation will inherit a net worth of 27.5 trillion euros. This number reflects the performance of the old generations over the last 75 years. But when a balance sheet analysis is replaced by an addition of gross debt, the young generation in particular understandably gets the impression that the “old” have left them a country “on the brink”.
Of course, this net worth is very unevenly distributed. And whenever debts and the associated demands are passed on to the next generation, they have to face distribution conflicts. For the national debt, they result from government expenditure on interest to the state’s creditors. The latter are usually the wealthier citizens, while government spending is raised by all of us through the general tax system.
Government debt can also be problematic when it creates inflation, crowds out private investment and leads to financial instability. These problems should not and must not be swept under the carpet. On the contrary: the balance sheet analysis helps to put these possible negative effects back at the center of the discussion. On the other hand, the intergenerational fairness debate is misleading because it ignores the fact that national debt can also be used to build up real assets, as is currently the case with special funds, and also always represents liabilities that correspond to equally high demands.
