The paper by Douglas Gale is an important contribution to the analysis of the role of public debt in affecting intertemporal allocations. To my taste, the most interesting part is without question that which deals with the role of debt in overlapping generation models. I shall concentrate my comments on that part.

We are used to thinking of the role of government debt in the context of models with certainty. In such models, the crucial issue is that of capital accumulation. Individual utility maximization may still lead to overaccumulation of capital, in which case issuing debt and reducing capital accumulation is Pareto-improving. The source of the welfare failure is that those currently alive do not hold claims to all future resources, and the crucial criterion is, assuming growth to be zero, whether the net rate of return on capital is negative (this is a loose characterization, the exact one being given by the Cass criterion). If it is negative, issuing some debt is Pareto-improving. Otherwise, it is not.

Under uncertainty, a different aspect of overlapping generation models comes into play, namely the incompleteness of markets. Finite lives imply that intergenerational insurance is limited, opening a second and conceptually distinct role for debt policy and government intergenerational transfers. Despite a number of papers on the subject, we know much less about the positive and normative effects of debt in that context. This is where Gale makes substantial advances.