Saturday, March 13, 2010

Creating Slack

Since the financial crisis I've heard people say it's good for us, we needed this crisis, we don't need to have so much stuff. There was somebody like that on Colbert the other night: "Annie Leonard says our quest for more stuff is taking the place of things that provide deeper happiness."

It's not exactly sour grapes, but it is some kind of rationalization. We can't have more, so we'll give up and say we're happy with less. Good. Good for them. Me? I don't see it.

Anyhow, the principle of self-interest sort of means people should do what they want to do. If you want "deeper happiness" go get it. If you want "stuff" go get it. Your choice. But I don't like it when some bimbo tells me my personal decisions are wrong.

I'm one of those still saying we must increase output. I readily admit that since the 1970s -- when lagging output growth first became an issue -- we've not been able to sustain the economic growth we need. But that only makes the matter more pressing.

I have shown a relation between productivity growth and the DPD trend. In 1990 DPD peaked, then declined; then we had "golden age" productivity as DPD rose again.

One of the fundamentals of Arthurian economics is the importance of DPD. It is an indicator at least, though I think it is the driving force that permits or prevents the improvement of economic growth. Driving force or not, DPD is a key factor.

Now, you don't need to take me at my word. (You need to investigate the notion and expand upon it.) But suppose I'm right: Suppose the debt-per-dollar trend determines the viable range of economic growth. If it is important to improve growth, then it is important to understand what drives DPD.

What drives the debt-per-dollar trend? Here's a clue, from a Los Angeles Times article on tax law changes, dated 27 December 1990:

Personal interest deductions have also fallen to 10% on federal tax returns. That means that the interest you pay on credit card debt and car and boat loans, among other things, is only 10% deductible for 1990 taxes. The deductions will be phased out completely next year.

Once upon a time, interest expenses were deductible. In 1990, that changed. People lost a tax advantage, and it made the use of credit less beneficial. So people stopped using so much credit. The growth of debt slowed. And debt-per-dollar declined.

Policy -- specifically, tax policy -- had a significant effect on DPD; and DPD had a significant effect on growth.

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