Sunday, February 7, 2010

Not a Pretty Picture

The graph shows interest income in this country as a portion of GDP. Or, since economists say that income equals output, the graph shows interest income as a portion of total income.

Interest income rises rapidly from 8.8% (in 1960) to 31.6% of total income (in 1982), then remains high. The average for 1973-2008 is 25%. So 25% of our income in this country is for facilitation and 75% is for production. However, the selling price of the stuff we produce has to cover the full 100% of income. The excessive interest expense makes costs high, per unit of output. It reduces demand. And it reduces profit.

It also makes our stuff less competitive in global markets.

Why is interest such a large part of our economy? Because policy takes money out of circulation and encourages the use of credit. In 1960 that was a pretty good policy. By 1975? Not so much.

You can view the Google Docs spreadsheet for this graph.

1 comment:

The Arthurian said...

The words in the graph title (interest paid) are not the same as the words in the post (interest income). But it's the exact same number for both.

Interest income is equal to interest paid.