If the borrowing is domestic, then we owe the debt to ourselves, and it seems that overall there is no intergenerational burden. This reasoning is misleading, however. Domestic borrowing to finance a deficit crowds out some investment spending. If the deficit spending is on capital assets such as roads and airports, it is possible that the capital stock passed on to the future generation is of more value than the investment spending that is crowded out.

However, if the deficit spending is on things other than capital assets, such as Medicare and unemployment insurance, then the future generation will receive a smaller capital stock. If the economy is at full employment, more crowding out occurs, increasing the likelihood that future generations will be made worse off. The key feature, however, is the nature of the deficit spending. If the deficit spending is on consumption items rather than investment items, the present generation is “living it up” at the expense of a future generation that will receive a smaller capital stock.