Saturday, August 14, 2010

It's Salvageable

The Economist provides A Special Report on Debt. It has a kind of odd view of things. It gives the impression that what happens in the economy is beyond our control. As if economic policy does not exist, or serves no useful purpose.

The article does contain a few goodies: A wonderful quote from Samuel Johnson. And some good graphs. But the article is poorly focused and unsatisfying.

The answer to all problems seemed to be more debt. Depressed? Use your credit card for a shopping spree... Want to get rich quick? Work for a private-equity or hedge-fund firm... Looking for faster growth for your company? Borrow... And if the economy is in recession, let the government go into deficit to bolster spending.

You know, if people who live and work in this economy (but don't make graphs of it and such) want to equate government debt with private-sector debt and shopping sprees, I guess ya gotta expect that. But I expect more from The Economist and its special reports. I expect them to at least consider the possibility that there may be a significant difference between my debt and the debt of my government.

This Special Report on Debt doesn't make the distinction. It blurs all debt together. It is designed to appeal to people's gut reaction to debt. It is not written to get people to think and evaluate our circumstance.

"Throughout the 1980s and 1990s..." the article says,

Debt increased at every level, from consumers to companies to banks to whole countries. The effect varied from country to country, but a survey by the McKinsey Global Institute found that average total debt (private and public sector combined) in ten mature economies rose from 200% of GDP in 1995 to 300% in 2008

Why the Special Report picks the particular numbers 200% of GDP and 300%, I do not know. But the impression I get is that 300% is a problem, and 200% was not a problem. Fair enough?

So we might say that our situation in 1995 was okay. And in thirteen years we went from okay to the brink of disaster. So it's maybe a medium-term problem, not long-term. That's good. That means undoing the damage won't be so difficult and won't take so long. It's salvageable.

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