A Matter of Life and Death

"This book is chiefly addressed to my fellow economists." -- Keynes, 1936.  
The economic problem, this time around, will not be solved by economists. For better or worse, it will be solved by ordinary people.

Economists today are always concerned about the fine points. No matter what topic you bring up, a decent economist always responds to an assertion with hesitation and equivocation. It reminds me of the old joke, that if you took all the economists and laid them end-to-end, they wouldn't reach a conclusion.

We have to fix the economy. We cannot wait for economists to reach a conclusion. And if you notice, people are not waiting. Case in point: the recent elections.

The task I have set for myself is to define a solution that can work.

I know. People already have a solution: Cut federal spending. They say politicians just don't have the will to make the cuts that must be made. I disagree. I say politicians have been doing what people say must be done, for several decades now. The fact that the plan has failed is not evidence it has yet to be tried.

As Ross Perot's own graph shows, we reduced federal spending from 23.5% of GDP in 1983 to 18.4% in 2000. But did that fix the economy? It did not.

Did it leave us with an economy that was rarin' to go? Nope. Peak capacity utilization was lower in the years after 2000 than at any time in the available data.

According to Paul Krugman, the economy's performance in the years after 2000 was as bad as it was in the 1970s.

According to Robert Brenner, performance in the 2000s was the worst in our lifetime:

The basic source of today’s crisis is the declining vitality of the advanced economies since 1973, and, especially, since 2000. Economic performance in the U.S., Western Europe, and Japan has steadily deteriorated, business cycle by business cycle... Most telling, the business cycle that just ended, from 2001 through 2007, was -- by far -- the weakest of the postwar period...

The decline of federal spending in the 1980s and '90s did not restore the economy to health. In the 2000s we were as bad off as ever, or worse. And in the last few years, as everyone knows, things have gone even more downhill.


This is my understanding of the popular view: Taxes are too high, and still the federal government runs huge deficits, so they must be spending too much. The solution is to cut government spending until budgets are balanced, or more.

It's a good argument. A bit brief, maybe, but a good argument.

Actually, that's one of my criticisms of the popular view: brevity. It is very limited. It looks only at taxes and deficits -- nothing else -- and immediately goes to conclusion.

Another problem I have with the popular plan is that if we have an economic problem, we ought to have an economic solution. But the discussion almost always comes down to personal, ad hominem criticisms: They are spendthrift. They are corrupt. They lack the will. They are the problem. And that, ladies and gentlemen, just ain't economics.

Another problem I have with the plan is, it is very easy to claim spending is excessive as long as you don't get specific. When you get specific, it almost always turns out that one person's wasteful spending is another person's priority. There's a mix of hypocrisy and wishful thinking involved when people get together, leave out specifics, and agree that cuts are necessary. After all this time, as you know, our newly elected politicians are still saying everything's on the table, and they cannot be specific.

If we can't decide what to cut, then maybe cutting is the wrong strategy. As for myself, I don't think spending cuts are necessary. I don't think they will fix the economy. Smaller government is better government, I'll give you that. But making government smaller will not solve the economic problem. The problem lies elsewhere.

Finally, I object to the popular view because it does not go back to the beginning. It doesn't go back to when our economy was good, and try to figure out where things went wrong. Instead, it focuses on one result of the problem -- the tax burden -- and hopes to improve things by fixing a result. There is no way such a plan can succeed.


My strongest objection to the popular plan is that it failed. We stuck with it all through the 1980s and 1990s, and it just did not work. People who support the plan keep saying we have not tried it, it will work if we do. Hogwash. We tried it. It failed. Now they keep moving the bar. Now, even Social Security is on the table. Where does it end?

The plan was to reduce the size of government. Ronald Reagan said this would restore the economy to health, and things would then improve. And, as Perot's graph shows, we tried that. But things got worse. Things keep getting worse. Thus the popular plan is left with no option but to move the bar.


The goal of Reaganomics was to restore economic growth. As William A. Niskanen writes,

"Reaganomics" was the most serious attempt to change the course of U.S. economic policy of any administration since the New Deal. "Only by reducing the growth of government," said Ronald Reagan, "can we increase the growth of the economy."

As late as the mid-1990s, growth remained the real objective. In To Renew America New Gingrich writes,

The power of economic growth was driven home to me by a study that suggested that a 1 percent increase in our economic growth rate would shrink the federal deficit by $640 billion over the next seven years...

In this world of merely 1 percent higher growth, the Social Security Trust Fund never runs out of money...

Today, we seem to have forgotten that the reason to reduce the growth of government was to increase the growth of the economy. The talk today is only of making cuts to government. Cutting itself has become the goal.

Reagan had the right goal: to increase economic growth. Restoring growth is the only way to solve our economic problems. But Reagan's strategy -- reducing the growth of government -- did not work. It didn't work because the growth of government was not the original problem. Like almost everything else, the growth of government was a result of the problem.


For thirty years or more, we have focused on the federal debt. We have tried to cut federal spending in order to reduce the growth of that debt. But, by any practical measure, we have failed to improve the economy.

The reason for this failure is that we have the wrong solution. The growth of government debt is not the problem. It is not government debt that holds our economy down. Private debt holds us down.

Private debt is the problem. Private debt increases the cost of living and the cost of doing business. Paying the cost of private debt reduces living standards and reduces demand. It reduces profits and reduces supply. The cost of private debt is the impediment to growth.

People say we need credit for growth. We do. But you don't get something for nothing. New uses of credit help the economy grow. That good effect is eventually offset by the negative effect of accumulated debt, which holds the economy down.

I think the trouble with the popular plan is that we got the details wrong. We saw high taxes and big deficits, and said we must reduce the government debt. The fact that it has not worked is evidence we need to re-think the plan.

Our objective must be to reduce private debt, not public debt. For if we do this, the economy will grow again, and the government debt will eventually evaporate.

For the nation, it is a matter of life and death.

// UPDATE 22 Jan 2012: Apparently, the PerotCharts site is gone. The link now displays a screen-snip of the Perot page as it used to look.

Counterthoughts

QE2

by Steve Landsburg November 18, 2010

Some Q&A about quantitative easing, with a somewhat higher ratio of economics to cartoon characters than we had yesterday:

What is this quantitative easing stuff? What exactly is the Federal Reserve (a/k/a “the Fed”) doing?
They’re creating 600 billion new dollars and using those dollars to pay down the government’s debt.

They’re paying down the debt? I thought they were buying bonds.

It’s the same thing. Last year, Huey McDuck lent the government a dollar and received a bond. (A bond is the same thing as an IOU.) Today the Fed buys Huey’s bond. Now the government owes a dollar to the Fed instead of to Huey.


"It's the same thing."

If the Federal Reserve is part of the government, and the U.S. Treasury owes money to the Fed, then our government owes the money to itself. In that case, it doesn't owe that money to anybody else, so I guess it doesn't even count as money owed. Makes sense to me...

Kind of by definition, the Fed is not part of the economy. So if the Fed has a dollar, that dollar is not "in" the economy. When the Fed buys something with that dollar, the dollar goes into the economy. And if the Fed sells something and receives that dollar in payment, the dollar comes back "out" of the economy.

So if the Fed buys something, the dollar goes into the economy and the something comes out. If they buy government debt, then that government debt should come out of the economy. It should "cease to exist" in the same way a dollar "ceases to exist" when the Fed receives it. That's what makes sense to me. But I never saw the story told that way, by somebody who really knows. Somebody like an economist.

If this is the right story, then a lot of things fit together and make sense for me. If a government debt ceases to exist, the government shouldn't have to pay interest on that debt. Or to simplify the paperwork, say, it could continue to pay interest on that debt but then get that money back at the end of the year, or whenever. Makes sense to me.

Of course, this all depends on accepting the view that the Fed is part of the government. I accept that view, but some people don't.

> SEE MILTON FRIEDMAN, MONEY MISCHIEF, P.206 (CLICK THE 'Page 206 »' LINK)
> SEE G. THOMAS WOODWARD ON 'PUBLIC OR PRIVATE'


But the government still owes someone a dollar!

Well, yes and no. Unlike Huey, the Fed is subject to a 100% tax on profits. So the government can pay its one-dollar debt to the Fed and then turn right around and swoop that dollar back up again. That’s just as good as not owing anything in the first place.


"The Fed is subject to a 100% tax on profits."

Almost.

1. G. Thomas Woodward writes: "Over its history, the Fed has paid to the Treasury approximately 95% of its earnings." So it's not 100 percent. It's 95 percent. But that's close enough for me.

2. The blogger Landsburg says the Fed is subject to a "tax." I don't think that's right. I think it's an oversimplification, the kind that leads to important misunderstandings down the road. The Fed turns it all over to the Treasury, not to the IRS. It's sorta like a husband and wife, both working, and they pool their funds. It's not like a tax at all.

> SEE G. THOMAS WOODWARD ON 'WHERE DO THE PROFITS GO?'
> SEE YAHOO ANSWERS


So in effect, the Fed is reducing the debt by 600 billion dollars. Does this mean taxpayers will have to cough up 600 billion fewer dollars in the future?

Yes.


This is a definitive answer to an ambiguous question. I think the question means, Is this $600B of debt that taxpayers won't have to pay back? If that's the question, the answer is easily a definitive yes, because the federal debt never gets paid back. Does this come as a surprise to you? It really shouldn't.

Oh, yeah, Clinton reduced the federal debt four times, and Nixon reduced it once. But basically, the debt never gets paid back. It used to be policy. These days, people get all bent out of shape about it.

> SEE TIME MAGAZINE OF 31 DECEMBER 1965 (NEXT-TO-LAST PARAGRAPH)


Sounds like magic! Why don’t they just do this over and over again until all the debt is gone?


That's not even a reasonable question. I don't think anybody would ask that, except maybe somebody writing a Q&A. Anyway, here is Landsburg's answer:

Because there is no such thing as magic. You can’t make the world a richer place just by creating dollars. Dollars are claims on wealth, but they’re not wealth. You can’t eat them, you can’t drive them, you can’t live in them...


Well, that's part of Landsburg's answer.

Landsburg says you can't make the world a richer place by creating dollars, because dollars are not wealth.

Fair enough. But as he points out, "Dollars are claims on wealth." So, there is a relation between wealth and dollars. That relation has to do with making claims on wealth or, as I would put it, it has to do with buying and selling.

If they print too many dollars it makes prices go up, yadda yadda. So we can say with some authority that the "relation" has to do with the quantity of money, and that too much money can be a problem.

Now, just naively, one would expect that not enough money could also be a problem. However, that is not something one hears people say. My collection of statements on money as the problem includes two from the 1600s which warn of problems resulting from a shortage of money, and an observation by Adam Smith that an increase in the quantity of money was beneficial in Scotland in the 1700s. No other observations on shortage of money, until mine of 1977.

You cannot make the world a richer place, Landsburg says, just by increasing the quantity of money. Adam Smith said you can. Smith said, "When paper is substituted in the room of gold and silver money, the quantity of materials, tools, and maintenance, which the whole circulating capital can supply [is] increased..." Production is increased, not because the money is paper, but because the use of paper permits an increase of the quantity of money.

Smith continues: "I have heard it asserted, that the trade of the city of Glasgow doubled in about fifteen years... and that the trade of Scotland has more than quadrupled" as a result of this increase in the quantity of money. It worked, because there had been a shortage of money. Just something to keep in mind.

The balance of Landsburg's answer:

...Paying down debt makes the taxpayers richer. But in order for taxpayers to get richer, someone else has to get poorer — unless the Fed finds a way to create real wealth. And that’s not so easy.


"Paying down debt makes the taxpayers richer."

A bold statement. Could be true. Or... the federal debtor could increase everybody's taxes and try to pay down debt that way. I don't know if it would work, but I do know it wouldn't make the taxpayers richer.

Okay, then. Who gets poorer?

When the Fed buys Huey’s bond for a dollar, Huey goes out to buy a blueberry muffin. This (ever so slightly) bids up the price of muffins and so (ever so slightly) reduces the value of everyone else’s money. Or maybe Huey lends that dollar to his cousin Dewey, who buys a muffin, or maybe the dollar takes a more circuitous route. But sooner or later someone tries to spend it, drives up a price, and drives down the value of existing money. We can even figure out the size of that effect: Since the taxpayers got a dollar richer (through the reduction of the national debt) and since the world as a whole is neither richer nor poorer, the moneyholders must have gotten exactly a dollar poorer. Do that 600 billion times and the taxpayers will be 600 billion dollars richer and the moneyholders will be 600 billion dollars poorer.


$600 billion poorer. That is quite a calculation. By Landsburg's measure, if Huey spends one new dollar, it "ever so slightly... ever so slightly" reduces the value of everyone else's money. But if 600 billion Hueys do it, moneyholders end up "exactly" 600 billion dollars poorer.

"There is no such thing as magic" when the Fed creates dollars. But there seems to be some magic in Landsburg's numbers. Besides the sleight-of-hand, Landsburg totally discounts the effect that economic growth would have on his numbers.

If output has been held below its "natural" level by a shortage of money, as in Adam Smith's Scotland, increasing the quantity of money can result in an increase of output rather than prices. Granted, such a state of affairs is alien to our experience. But the "printing money causes inflation" argument makes the most sense in its most complete form, which includes the possibility of a shortage of money.

>SEE MILTON FRIEDMAN, MONEY MISCHIEF; MONEY USUALLY MORE SIGNIFICANT


Aren’t the taxpayers and the moneyholders largely the same people?

Largely, but not completely. Bill Gates pays a lot of taxes, but he might not hold a lot of money. Odds are most of his wealth is tied up in other assets, like Microsoft stock.


The question is a general one, covering many people. The answer is a specific one, considering only one person. I cannot analyze this answer further.

I would point out, however, that pretty much everybody has their money tied up one way or another, in assets or in bills or what-have-you.

Are there any other downsides to all this?

Yes. The taxpayers are relieved of a 600 billion dollar debt burden. That’s 600 billion dollars worth of good. The moneyholders see the value of their money reduced by 600 billion dollars. That’s 600 billion dollars worth of bad. So far, at least from the perspective of the-world-as-a-whole, that washes out. But there are additional costs. For one thing, people will scurry around trying to convert their money into other assets so they’re not holding money when it loses value. That’s a lot of effort that serves no real social purpose. For another, it’s harder to do financial planning when the value of the currency is subject to unpredictable change. So on balance, the world is actually a poorer place.


Not according to Adam Smith.

Well, that’s terrible.

Compared to what? In the absence of this Fed action, we’d still have to pay that debt off someday. We’d do it by raising $600 billion in taxes — with all the accompanying disincentive effects. That’s kind of terrible too. It’s not clear whether the Fed’s action is better or worse than the alternative.


Oh there ya go. "It’s not clear whether the Fed’s action is better or worse than the alternative." Landsburg must be an economist. He cannot reach a conclusion.

Are there any ways in which printing dollars can enrich the world?

Well, maybe, if people are sufficiently idiosyncratic. Take Huey’s Uncle Scrooge, for instance. Unlike Huey, who (like most of us) values money only for what it can buy, Scrooge values money as a thing in itself: He likes to fill his vault and swim in it. I said earlier that dollars aren’t wealth because you can’t eat them, drive them or live in them. But they’re wealth if you like to nuzzle them. Buying bonds from Scrooge increases the world’s stock of nuzzlables, and that makes the world a richer place.

Where does the extra wealth go?

Well, not to Scrooge, really, because he’s got to trade away his bonds to get those beloved dollars. But consider: When the Fed buys Scrooge’s one-dollar bond, it retires a dollar of debt and makes taxpayers richer — just like buying Huey’s bond. But Scrooge, unlike Huey, never spends his new dollar. So prices never get bid up and our money retains its value. That’s a gain for the taxpayers at no cost to anyone. By creating something of value — a dollar for Scrooge to cherish — the Fed can make the taxpayers a dollar richer at no cost to anyone.


So... Landsburg is saying what we need is a way to reduce the federal debt, but without increasing the quantity of money.

This interests me because Landsburg apparently sees an imbalance between the quantity of federal debt and the quantity of money. I see a similar imbalance, between the quantity of total debt and the quantity of money.

Of course, there are differences. I see the imbalance as a recurring long-term trend that repeatedly results in Depression. Landsburg sees the imbalance as a problem because it makes our taxes high.

There is a problem with Landsburg's view, because his focus is on the federal debt. The problem arises because our money is backed by federal debt. Every dollar the Fed puts into circulation gets there because the Fed uses that dollar to buy some Federal debt. So, how can they take federal debt out of the economy, without putting money in?

1. The Fed can buy federal debt, but this means the Fed is putting money into the economy. It's what they usually do, but Landsburg doesn't like it.

2. The Fed can buy non-government debt, as opposed to federal debt. And, interestingly, that is exactly what they did in the first Quantitative Easing. But again, the Fed is putting money into the economy.

3. At some point perhaps, the Fed can swap the non-government debt it bought during QE1 for federal debt held in the private sector. This will reduce the federal debt without increasing the quantity of money. That might satisfy Landsburg.

It does not satisfy me, because I don't think federal debt is the problem. I think private-sector debt is the problem that holds our economy down.

So buying a bond from Huey means paying down the debt at the expense of the moneyholders, while causing some auxiliary damage that might or might not be greater than the auxiliary damage you’d cause if you tried to pay down the debt some other way. But buying a bond from Scrooge means paying down the debt at no expense to anyone.

Correct.


"...at no expense to anyone."

Okay, I'm rememberin that one. I'm gonna say stuff like Anyhow, as Landsburg says, it doesn't really cost anything when the Fed spends money.

Sounds like we need more Scrooges! Do they exist outside of comic books?

Probably not too often. More’s the pity.


"More's the pity."

Wow. My differences with Landsburg until now have been minor. This one is huge. Uncle Scrooge is hoarding money. Landsburg is telling us we need more hoarding. I'm saying, we don't. Hoarding is a problem.

In a normal economy, hoarding is what the Fed does when it sells something. It doesn't spend the money it receives in exchange; it hoards. That's the real reason we say that money is "out" of the economy when the Fed has it.

In today's economy, hoarding is what the banks are doing, with their vast quantity of excess reserves. The Fed put all that extra money into the economy, but the banks are sitting on it like Uncle Scrooge. So that money is effectively out of the economy.

If the Fed is putting trillions of dollars into the economy, maybe the only way to avoid inflation is to increase the hoarding. But that doesn't help the economy recover.

But all that hoarding, that is the reason the Fed has been increasing the quantity of money -- to keep the quantity in circulation from dropping as hoarders snatch money out of circulation and stuff it under the mattress or into reserve accounts.

I think our true objective is economic recovery. Preventing inflation by cloning Scrooge the Hoarder may be better than hyperinflation. But recovery is better yet.

Anything else we should know?

Keynesian economists (like Paul Krugman) have various theories about how buying bonds from guys like Huey could help get us out of the recession. I’m skeptical of those theories, though you should treat my skepticism with a grain of salt, because I am not really an expert on macroeconomics. (Though neither, come to think of it, is Paul Krugman.) But even if those guys are right, I’m largely unimpressed, because I don’t think recession fighting is a terribly important goal compared to enriching the world in the long run. And as far as that goal goes, I think I’ve covered the key issues here, though I’m sure readers will let me know if I’ve left something out.


"I don’t think recession fighting is a terribly important goal compared to enriching the world in the long run."

Sentences like that always make me thing about the Dark Age. And I have to wonder whether the guy who says it thinks the fall of Rome somehow enriched the world.

Green Lines

If you pray...

At The Great Recession, Peter Murray posts a graph of total U.S. debt relative to GDP. It's a version of the graph we've seen before. But Peter has labeled the high points.

I show this graph because it highlights the same high points that I used to stare at, looking for meaning. Eventually, I had a useful thought.

Notice how the two run-ups to peak are different? The recent peak, Peter's 360%, is fast, but it seems to be an accelerating trend. By contrast, the older peak is a sharp spike, quick up and quick down. A departure from the trend.

The older peak is a spike generated by the collapse of GDP during the Great Depression. We have not had anything like that yet, this time around.

The second graph is a duplicate of the first, but I added a red trend-line to make the spike stand out. I also added a black arrow, below my trend-line. The arrow points to a location comparable to where we are now, before the collapse.

I don't make predictions. I don't know that there will be a collapse. But I know that if there is one, total debt will spike to 600% of GDP, maybe more.

OMG! The Kitchen Floor's All Wet!!!

Turning off the faucet before you mop the floor doesn't work if one of the pipes is broken.


KITCHEN FLOOR ALL WET = TOTAL U.S. DEBT
TURNING OFF THE FAUCET = CUTTING FEDERAL SPENDING
BROKEN PIPE = POLICIES THAT ENCOURAGE THE RELIANCE ON CREDIT

Under every rock, a critter.

It's amazing what you can find on the internet. Google and ye shall find.

Federal taxes relative to GDP are remarkably stable, tracking from 17.2 percent to 18.5 percent of GDP over six decades. At 14.8 percent for 2009 and 2010, they were the lowest since the recession year of 1959 at the end of the Eisenhower administration.

Nobody would believe it, I don't think. I'm gonna check it, myself.

The excerpt is from "Reality of federal spending doesn't fit myth" at Twin Cities dot com Pioneer Press. It seems to be attributed to St. Paul economist and writer Edward Lotterman.

(To me, the post has a political feel to it. Not my cup of tea. But I was looking for something on the level of taxes, and there it was.)

// additional search results

Free By 50 provides graphs, including one that pretty much confirms the Twin Cities excerpt above.

EconomicsJunkie provides a graph that doesn't agree. After a while I figured out that this graph shows total (federal, state and local) government taxes. The two previous links consider only federal taxes. Thus the difference.

At first blush, Junkie's two graphs -- expenses, and receipts -- both appear to be continuously climbing. Looking again, one can see that from 1970 to 1993, more or less, total government receipts as a percent of GDP briefly stabilize at around 28%.

(I always look for details like that.)

I ♥ Blogger

And yes, there it is. I'm clicking it now...

Nice.

Some days, I wake up with thoughts like these...

Put lawyers in Congress, and they make laws no one can read.

Put finance people in charge of policy, and they cannot see debt as a problem.

This is too good to pass up!

From EconomicsJunkie:

Happy Thanksgiving

Making nice to Krugman

I pick on Paul Krugman a lot -- not because he's bad, but because he's good. (That's not an apology, Paul, but it's as close as you're gonna get.)

Anyway, I ran across an article of his on Slate, posted in 1998 if you can believe that. Like lots of economics, it's part interesting and part wrong. But he does say this:

You may tell me that it's not that simple, that during the previous boom businessmen made bad investments and banks made bad loans. Well, fine. Junk the bad investments and write off the bad loans.

"Write off the bad loans."

I've said it before, but the Fed now owns a huge chunk of bad loans -- the result of a rescue mission to get those loans out of the private sector. Well, they're out. But people are still trying to make payments on those loans.

We got the bad assets out of the economy, but not the bad liabilities. That's why the economy cannot recover. If the Fed would just "write off the bad loans," the economy would recover.

And yes, Paul, you said it before I did.

Making the Wrong Argument

Krugman argues over and over that we need more government spending, that we should not worry about government debt, that government debt will bring recovery.

In my recent series on debt (beginning here) I have shown that government debt is not the debt that is holding our economy down. Private debt holds us down.

Note that there is no mention of government debt in this sentence: Private debt holds us down.

Increases in government debt have not brought recovery, not yet, and not since the 1970s. We never really recovered from that 1974 recession. Why? Because private debt holds us down.

Krugman is right: Increases in government debt should bring recovery. But the other guys are right, too: Increases in government debt don't bring recovery. So, are we gonna argue about this until we end up in a Dark Age? Or are we gonna take a step back and try to see what's missing from the discussion?

What's missing is any consideration of private debt.

GE Capital

You know. They advertise on the Sunday morning talk shows

GE's tax return is the largest the IRS deals with each year--some 24,000 pages if printed out. Its annual report filed with the Securities and Exchange Commission weighs in at more than 700 pages.

Inside you'll find that GE in effect consists of two divisions: General Electric Capital and everything else. The everything else--maker of engines, power plants, TV shows and the like--would have paid a 22% tax rate if it was a standalone company.

It's GE Capital that keeps the overall tax bill so low. Over the last two years, GE Capital has displayed an uncanny ability to lose lots of money in the U.S. (posting a $6.5 billion loss in 2009), and make lots of money overseas (a $4.3 billion gain). Not only do the U.S. losses balance out the overseas gains, but GE can defer taxes on that overseas income indefinitely....

...it's the tax benefit of overseas operations that is the biggest reason why multinationals end up with lower tax rates than the rest of us....

As a result, figures tax economist Martin Sullivan, companies are keeping some $28 billion a year out of the clutches of the U.S. Treasury by engaging in so-called transfer pricing arrangements, where, say, Microsoft's ( MSFT - news - people ) overseas subsidiaries license software to its U.S. parent company in return for handsome royalties (that get taxed at those lower overseas rates).

Congress is in charge of the tax code. What GE gets away with is Congress's doing.

Debt, Deleveraging and... More Debt

Krugman of 18 November introduces his new 32-page PDF, Debt, Deleveraging, and the Liquidity Trap, and offers an informal summary of the paper as well.

In this post I review excerpts from the "informal summary." The excerpts are in white boxes here, and my remarks (as always) are on the parchment.

Sharply rising debt, it’s widely argued, set the stage for the crisis, and the overhang of debt continues to act as a drag on recovery.

Absolutely. And I would say that as long as debt is the problem, debt must be our focus, and debt is the problem we must work to resolve.

...despite the prominence of debt in popular discussion of our current economic difficulties and the long tradition of invoking debt as a key factor in major economic contractions, there is a surprising lack of models – especially models of monetary and fiscal policy – of economic policy that correspond at all closely to the concerns about debt that dominate practical discourse.

See it? Halfway through this excerpt, Krugman's eye drifts from debt to models of debt!

Even now, much analysis (including my own) is done in terms ... which by definition can’t deal with the consequences of the fact that some people are debtors while others are creditors.

Really? That's just sad.

You'd think it would be intuitive. This reminds me of something Maynard said:

...it is fortunate that the workers, though unconsciously, are instinctively more reasonable economists than the classical school...

You knew, didn't you? Being a debtor is not the same as being a creditor. You know "the consequences" are different. If economists don't know it, maybe that's because they are looking at models.

Okay. To the crux of the matter. First, Krugman sets the stage:

In the current policy debate, debt is often invoked as a reason to dismiss calls for expansionary fiscal policy as a response to unemployment; you can’t solve a problem created by debt by running up even more debt, say the critics. Households borrowed too much, say many people; now you want the government to borrow even more?

Krugman rejects the critics' view. Then he adds:

It follows that the level of debt matters only because the distribution of that debt matters, because highly indebted players face different constraints from players with low debt.

Well, okay, so he needed a model to see it. At least he can see it now: The distribution of debt matters. The consequences are different. Good job, Paul.

But then we get to Krugman's next thought:

And this means that all debt isn't created equal – which is why borrowing by some actors now can help cure problems created by excess borrowing by other actors in the past.

"All debt isn't created equal." This is Krugman's justification for increasing the federal deficit?? It's pathetic.

And... who are these "some actors" that can cure problems created by the excessive borrowing of other actors? Why, the federal government of course!


I don't do models. I don't know how to make a model. But I know how to look at the numbers and see what they show. It ain't rocket science. Maybe it ain't even economics. But the math is simple enough. And the math tells me... My eyes are on debt in the previous post, and my good eye tells me that the apparently monstrous federal debt is nothing, compared to the size of our private debt.

Krugman knows debt is a problem. But his model tells him it's okay to make the public debt bigger. My simple arithmetic says Don't make the small debt bigger. Make the big debt smaller! For the overhang of debt continues to be a drag on recovery, and debt is the problem that we must solve.

It's not what you thought

BASED ON MY POST OF NOVEMBER 15th.

A couple years back, there was a flurry of excitement over a graph showing that total U.S. debt had reached 350% of GDP. This graph breaks that 350% into its public and private components:

The "public" debt shown here includes debt of federal, state and local governments.

The trend in government debt relative to GDP (the black line) is essentially flat from 1960 until the Paulson Crisis of 2008. And all that time, private debt (the red line) was climbing. So, if the increase in debt relative to GDP is a problem, the fault lies entirely with the private sector.


For notes on sources, refer to this Google Docs spreadsheet.
For the graph shown here, refer to this Excel file.
For data and calculations, refer to either file.

Symmetry

For some reason I don't clearly understand, a lot of people seem to think that "printing money causes inflation," but using credit doesn't.

But if global economic deleveraging -- the shared desire to reduce debt ASAP -- threatens to cause deflation, then surely global economic leveraging -- credit use and the creation of debt -- could have contributed to inflation. Or, probably contributed to inflation. (Or, must have contributed to inflation.)

Increasing debt contributes to inflation; Decreasing debt contributes to deflation. It is simple symmetry.

Related but irrelevant to the topic of this post: Deleveraging is deflationary because it draws money out of circulation. If we can reduce debt without drawing money from the spending stream, it will not be deflationary.

My proposal to print money and use it to pay down debt is such a plan. Oh, and it won't cause inflation because the new money is destroyed when the debt is repaid.

Catechism Questions

Q: What is the problem with debt?

A: The problem is cost.

Q: What is the problem with paying it off?

A: The problem is cost.

Q: When does debt become a problem?

A: Debt becomes a problem when not paying it off  becomes too costly.

A Look at the Debt Problem (4)

People used to think we could balance the budget by getting the economy to grow. (That was the whole notion underlying Supply-Side economics.) But people these days, some of 'em -- more and more of 'em -- seem to doubt we can ever grow like that again.

Much time has gone by. Many people have never known a "good" economy. As Jude Wanniski said in Reader's Digest (Feb 1995, p.49): "You have to have lived in the 1950s and 1960s to have experienced a good economy."

It's 15 years since he said that. Too much time has gone by.

It must be gradual, but in 10 years we could be on top of the world instead of simply hoping that the Great Sluggish will one day be over.

My solution to get the economy going again is to print money and use it to pay off debt. That's because I think debt is the problem. But not the Federal debt. Private debt is the problem: Our debt -- yours and mine -- is keeping us down and keeping our economy down.

Our fault?

No. It is the fault of economic policy. Bad policy. And I say: Let policy pay. Let the Federal Reserve pay. And let Congress sit on their hands and be quiet.

A Look at the Debt Problem (3)

...not the changes of direction, but the direction of those changes...

Government debt increases during recessions, until the economy starts to grow. Private debt increases during periods of growth, until growth cannot continue.

When a recession slows the economy, private-sector debt growth slows. When the economy recovers, private-sector debt growth resumes.

With every recession, Public CFPY increases and Private CFPY decreases.

Dare I say it? The graphs seem to show it is private-sector failure that leads to public sector debt growth.

Anomalies

There are very few times that the above generalizations do not hold.

1. The debt trends appear to change in the middle of the 1991 recession. This would directly contradict my generalizations.

But the problem here is that the recession bar is inaccurate. According to the St. Louis Fed, the 1991 recession started in July of 1990 and ended in March of 1991. So the recession ended early in 1991. By these dates, the CFPY graphs show debt trends that fit my generalizations.

The recession bar for the 1991 recession makes it look like the recession lasted from January to December of 1991. This is the source of the discrepancy. (For more on this, see my Jealousy Bars post.)

2. A peak is visible around 1966-67 on the Public CFPY graph. But there is no corresponding recession.

Ah, but there is, almost. As Paul Kasriel put it:

The LEI contracted on a year-over-year basis from Q4:1966 through Q2:1967 although no recession was declared by the NBER. However, "unofficially," this period was referred to as the mini-recession of 1966-67. The Fed quickly began cutting the funds rate in December of 1966, thereby averting an official recession.

Recession was averted, but it was in the works.


The generalizations hold.

A Look at the Debt Problem (2)

THIS POST IS A FOLLOW-UP TO MINE OF 15 NOVEMBER.  A FURTHER LOOK AT THE CHANGES IN DEBT.

Took the debt numbers used for my November 15th graphs. Got rid of the oldest, mismatched stuff. Then figured "Change From Previous Year" calculations for public and private debt. Made a graph of that. But CFPY numbers vary a lot. Showing public and private on the same graph made a messy picture. I ended up with two graphs:

GRAPH #1: CFPY, PRIVATE PORTION OF TOTAL DEBT

GRAPH #2: CFPY, PUBLIC PORTION OF TOTAL DEBT

Does Size Matter?

The first thing I see in these graphs is that the ups and downs of public debt -- Graph #2 -- are much bigger than those of private debt. It is not immediately clear to me why.


The two screen clips above show some of my numbers. The left-hand clip shows the values I started with. The right-hand clip shows "percent change" figures for today's graphs.

(The source numbers -- the left-hand clip -- are shown in Graph #2 of November 15th. I used them to figure the public and private "portions of total debt" shown in Graph #1 of November 15th. The right-hand clip is what's new here: It shows change-from-previous-year values for those "portions" of total debt. Today's graphs show annual changes in the "indebtedness balance" of the public and private sectors.)

GRAPH #2: CFPY, PUBLIC PORTION OF TOTAL DEBT (REPEATED)

In that right-hand clip you can see the "Pub/Tot" numbers in column B vary from a low of -7.4% in 1973, to -5.3% in 1974, to a high of 8.2% in 1975. On today's Graph #2 (repeated at right) you can see that big jump, from the 1973 low to the 1975 peak, with the shading of the 1974 recession behind it.

I accidentally exaggerated this jump  by going with newer data, switching from the 1956-1995 data series to the 1975-2009 series at 1975 (as I did for the graphs in the previous post). But the exaggeration is slight. If I had only used the 1956-1995 series, the 1975 peak value would have been 8.0% rather than 8.2%. Almost the same number. Whatever. Anyway, that's what I did.

It turns out that the CFPY jumps are bigger for Public than for Private debt because Public debt is smaller, so a given jump stands out more in comparison to Public debt.

For example, between 1974 and 1975, public debt increased from 24.3% of total debt, to 26.3%. At the same time private debt fell from 75.7% of total debt to 73.7%. In both cases the change is two percentage points of total debt. But for private debt, the change was 2 out of 75.7 percentage points. That's less than a 3% change. For public debt it was a change of 2 out of 24.3 -- an increase of 8.2%. So the change looks bigger for public debt than private, because public debt is so much smaller.

The "When" of it

The next thing I notice on the public graph is that the big changes in Public CFPY do not begin until the 1974 recession. The change from 1974 to 1975 is the first big one.

On the 15th I linked to a graph by Ross Perot (from his 1992 book) that showed the number of "generations required for U.S. living standards to double." Before 1973, less than two generations were required. After 1973, 12 generations are required. Perot's graph shows a significant slowdown in economic growth in the years after 1973.

That slowdown makes an appearance on my Graph #2 as a dramatic increase in the size of the Public CFPY changes since 1974.

The change in Public CFPY is clearly associated with the economic slowdown. So, either the economy slowed immediately in response to suddenly increased government deficits, or the economic slowdown came first and increased deficits were the response. The latter is what happened, of course. But it is worth noting that Public CFPY changes continue to be large, meaning that the 1974 slowdown has not yet abated.

Below Zero!

The next thing I see on the Public CFPY graph is that, before the 1974 recession, all of the changes take place below the zero-line. (Most of the changes before 1974 are between zero and 5 below.) What this means is that all of the Public CFPY changes between 1957 and 1973 were decreases. In plain language, the public share of total debt was decreasing until the 1974 recession.

The Private Eye

The Public CFPY graph shows small changes until the 1974 recession, and large changes after. On the same graph, the entire trend-line is below zero until the 1974 recession. After that recession the trend-line is more or less centered on the zero, and crosses the zero easily. It is as though there are two different graphs here, or at least two different sets of circumstances shown on the graph: before 1974, and since.

GRAPH #1: CFPY, PRIVATE PORTION OF TOTAL DEBT (REPEATED)

Having noticed this "1974 shift" on the Public CFPY graph, the eye expects to see something similar on the Private CFPY. Here, there is no clear shift in the size of the changes. But it is easy to see that the red trend-line of this graph is entirely above zero until the 1974 recession. Those are the same years that Public CFPY was entirely below zero. And it is easy to see that since 1974, the red trend-line, like the black one, looks to be centered on the zero.

Summary

The big jumps in Public CFPY only start in 1975. Everything on the Public graph is below zero until the 1974 recession. And everything on the Private graph is above zero until the 1974 recession.

Changes in Public debt were small until the 1974 recession, but larger since that time. Until the '74 recession, the tendency of public debt was to decrease. Until that same recession, the tendency of private debt was to increase. Since the economic slowdown of 1974, the end of our so-called golden age, the tendency of government debt to decrease has dissipated.

These changes suggest it was the economic slowdown -- the change noted by Perot and others -- that caused the trends of debt to change. These changes also suggest that government debt grows more when the economy is slow than when it is healthy -- but that since 1974, the growth of public debt has not restored economic vigor.

Increased public debt has not restored economic vigor since 1974. But neither was it an increasing public debt before 1974 that undermined economic vigor. In the years before 1974 it was private sector debt that was increasing.

These observations suggest that the solution to the federal debt problem is to make the economy vigorous again by reducing debt in the private sector.

"Simplified"

From this page at Perotcharts --

What I think?? I think the "Debt Issues" discussion of the past 30 years was already simplistic and over-simplified.

A Look at the Debt Problem

Pretty much everybody is focused on spending cuts and balancing the federal budget. Everyone sees the federal debt as a problem. But for thirty years or more, we have been unable to solve the debt problem. To me this suggests that something is wrong with our solution. So I thought it time to take another look at the debt.

The size of it

People say the massive government debt is a problem. I agree. And yet... private debt is four times the size of government debt. Graph #1 shows public and private debt as shares of total U.S. debt, against a background showing recession years.

GRAPH #1: THE PORTIONS OF TOTAL DEBT

The red line that starts high, drops in a sharp "V" during World War II, then rises again and ends high, is private debt as a percent of total U.S. debt. Private debt is very high.

Government debt is low by comparison. The black line that starts low, rises to a peak during World War II, then drops off and ends low, is government debt as a percent of total U.S. debt. That's federal, state and local government debt, combined.

If the debt is too big -- and there can be no doubt it is too big -- private debt is by far the biggest part of it. If we reduce government debt to zero, 80 percent of our debt problem remains.

Numbers for the graph come from different sources, older and newer. This is why the red and black trend-lines both have "mis-match" areas from the mid-50s to 1970.

The cost of it

If the federal debt was by some magic totally wiped out, we might see a 5.3% reduction in our taxes. That's all it takes to cover the interest on the federal debt. By contrast, if corporate interest costs were reduced by half, that would free up enough corporate revenue to give every employee a 30% raise!

Debt drives up cost and reduces profit in the private sector, and competes with labor for income.

The numbers

GRAPH #2: TOTAL DEBT IN BILLIONS

Graph #2 shows the increase in public and private debt. Since 1974 I say, the level of debt has been too high to permit our economy to grow with vigor. But look how much the debt increased since 1974!

The red line on this graph is private debt; the black line is public debt. These trend lines show great increase of debt.

And remember, the area under these trend lines represents thousands of billions of dollars of debt. And for each of those dollars somebody paid 2 cents or 3 cents or 5 cents, or maybe 9 cents interest for the use of that money, each and every year. It is the cost of debt that kills us.

The numbers in context

GRAPH #3: TOTAL DEBT AS A PERCENT OF GDP

A couple years back, there was a flurry of excitement over a graph showing that total U.S. debt had reached 350% of GDP. Graph #3 breaks that 350% into its public and private components.

The previous graph showed great increase in the dollar-amount of our debt. This one shows that same debt, relative to GDP.

The trend in government debt relative to GDP (the black line) is essentially flat from 1960 until the Paulson Crisis. And all that time, private debt (the red line) was climbing. So, if the increase in debt relative to GDP is a problem, the fault lies entirely with the private sector.

The timing of it

GRAPH #1 (REDUCED)

As you can see on Graph #1 (repeated here), government debt rose to a peak during World War II. At the end of the war, government debt was at its highest level. After the war, government debt declined continuously until 1974. By no coincidence, between 1947 and 1973 the U.S. economy experienced a golden age.

But it was not the decline of government debt that drove economic performance. The private sector drove it. The economy grew because the private sector grew, and the private sector grew because private debt was growing. And private debt was able to grow, because it was low to begin with, after the war.

Graph #4 shows private debt, relative to public debt. A relative increase in public debt will drive the red line down, as it does here during the Depression and World War II. A relative increase in private debt will drive the red line up, as it does here from 1947 to the 1974 recession. Roughly equal growth of public and private debt will leave the red line roughly flat, as we see for 20 years after the 1974 recession.

GRAPH #4: PRIVATE DEBT AS A MULTIPLE OF PUBLIC DEBT

During our 1947-1973 "golden age," private-sector debt increased. 1974 was when the trouble started. By 1974, interest costs took so much out of wages and profits that our "golden age" came to an end.

Since 1974, by no coincidence, the best-performing part of our economy has been the financial sector. Since 1974, the level of debt has been too high and the cost of debt too great to permit the productive sector to grow with vigor.

Graph #4 also highlights a difference between Arthurian economics and Modern Monetary Theory. MMT wants to increase the denominator. I want to decrease the numerator.

The MMT way -- increasing the federal deficit -- is exactly what we have been doing since Reagan. That is why the federal debt is so large. It's why people are up in arms about the federal debt. Moreover, even in a weak economy the method fails, because no matter how fast government debt increases, private debt increases as fast or faster.

The thing we need is some measure of balance between public and private debt. We don't need public debt to increase in dollars, but we do need it to increase relative to private debt -- not forever, but only until balance is achieved. And, since it is private debt that shows inordinate increase since the 1970s (see Graph #3), the appropriate solution is to reduce private debt.

Recently, our economy took that task upon itself. Economists call it "deleveraging." A better solution to the problem would be to apply forethought to the task, late as it may now be. The solution is to use policy to reduce private-sector debt, in the least painful and most productive way we can.

The best solution is to achieve balance, painlessly. And how will we know when the task is done? We will know balance has been achieved because economic performance will be at its peak.

Summary

In the years after World War II, there was no significant interruption of increase in private debt relative to GDP, until our recent financial crisis. By contrast, since World War II, government debt relative to GDP fell and then stabilized at a comparatively low level. Private debt is now four times the size, and the cost of it much greater, than the size and cost of our public debt.

Economic growth depends on the growth of private debt. But the accumulation of private debt ultimately hinders growth, as it has for us since 1974. Once that limit is reached, the further increase in private debt cannot significantly improve growth. Meanwhile the increase in public debt leads only to popular discontent.

The solution, the Arthurian solution, is to have the Federal Reserve take all that bad debt it bought up, and use newly printed money to pay that debt off. The Fed gets this money back immediately, so it cannot cause inflation. But private debt is reduced by a significant margin. And no new taxes, and no government spending are involved.

Jealousy Bars

As someone who loves graphs, I've long been jealous of the "recession bars" that show up on the FRED graphs and some others. So finally it occurred to me to google it. I type recession b and Google offers recession bars excel, which is perfect.

First thing that comes up is a 4-page PDF from the St. Louis Fed (almost all pictures, very few words) that shows the whole thing in four steps. (I didn't count 'em.) And it worked! (I was using Excel 2003, FYI.)

Only trouble I had was in the last step. See how they've emphasized the "Overlap" item here on the form? But if you look again you can see they left the cursor in the "Gap Width" item, below "Overlap."

Gap Width is the one you have to set to zero, or you'll get 5 skinny recession bars for 1929-1933, rather than one fat one!

//

As someone who is inexplicably fussy about petty little things, I have to point this out: Recessions start and end dates are given as month-and-year. So if your data is monthly, you're good. If your data is weekly, or daily for that matter, you're okay. But if your data is annual, you have to be subjective. For example, for the recession that starts in July of 1981, you have to choose whether to show it for all of 1981, or none of 1981.

Your recession bars in this case will show the year of recession, which is useful. But your bars won't show whether the recession starts early or late in the year. So it's not perfect. I'm calling these imperfect recession bars "jealousy bars" because (perfect or no) I just have to hav'em.

Oh... The second thing that comes up in that Google search answers the question, What dates are used for the US recession bars in FRED® graphs? That's where you can get the recession dates for "step one" of the PDF.

//

I had in mind to subtitle this post "Your Tax Dollars at Work" because that very nice PDF comes from the Federal Reserve (St. Louis). But that's not right. The right subtitle might be "Your Interest Payments at Work."

That's okay. I really like the St. Louis Fed.

Budget Deficit Charts

At the Perot site, at the first of the Budget Deficit Charts, the opening sentence reads:

The federal budget challenges faced by the citizens of the United States of America start and end with spending.

Dunno about that, but the Budget Deficit section definitely starts with a conclusion!

We've been trying to cut spending and balance the budget for 30 years and more, with no significant success. The more we fail, the angrier we get. The angrier we get, the more adamant we get. The more adamant we get, the less we are able to think things through. Nobody ever stops to say --

Well, maybe we are approaching the problem the wrong way.

Let us begin

The Sunday-morning talk show drivel wants to put everything on the table. That's the plan. Maybe they don't know what spending to cut, or maybe they just don't want to say what they think. But they all want everything on the table.

No... Nothing goes on the table. Nothing but elbows and coffee cups.

They all come on TV and the first thing out of their mouth is a conclusion. "We have to balance the budget." But we have been trying for 40 years, and in 40 years we balanced the budget four times. We cannot balance the budget.

We cannot solve the problem with spending cuts. Since LBJ and Nixon, our Presidents have been trying to contain costs and balance budgets. Not even Reagan could do it.

The solution does not begin with conclusions. It begins with analysis of the problem.

Eliminate the Mortgage Interest Deduction?

Wait, wait! Don't do it in the 1960s, when the reliance on credit is still relatively low. Save it up.

Now, now is the time to do it. Now, when we have so much debt that the economy can no longer function. Now is the perfect time to eliminate the interest deduction.

Yeah, right.

Politicians give new meaning to the word "fool."

Debt and Patriotism

The U.S. dollar is not backed by gold. It is backed by federal debt. And this is okay, because you are a patriot and you love your country.

It is okay also, because the quantity of money needs to grow along with output and population -- and along with prices too, for that matter -- and there is not much chance of gold production fitting that requirement very well.

But when you think about it, it's kinda funny: Given that our money is backed by government debt, if we reduce the federal debt to zero, we can have no money at all!

The Men of Good Will

The balance sheet of the Federal Reserve greatly expanded as a result of its response to the recent financial crisis. I don't know why anyone would care either way about it, but some people have expressed concern about that balance sheet being reduced back to something close to what it was, at some point.

Maybe it can be done this way:

1. The Fed sells assets to the public.

For the public, this means that people with money to invest -- people with savings -- exchange some of that savings for assets the Fed is selling. This reduces "money in savings" in our economy, which is something we need to do.

For the Fed it means that the makeup of the balance sheet shifts to fewer non-money assets, and more money. Bringing money into the Fed's coffer reduces the risk and potential severity of inflation.

2. The Fed uses this influx of cash to make payments against private-sector debt: mortgages, and credit-card bills, and car payments, any sort of private-sector debt. But since mortgages are the problem, perhaps we should focus there.

For the Federal Reserve, the size of the balance sheet is reduced, because money is destroyed when debt is repaid. The money the Fed uses to pay down private-sector debt is money that ceases to exist. On the balance sheet maybe they can write it off as "goodwill."

For the lender, it completes the transaction, repaying loans and restoring the creditor's savings. It reduces risk by reducing debt.

For the debtor, it is direct help with the bills. It frees up regular income for other things. It serves the purpose of a debt jubilee.

For the economy as a whole, the accumulation of debt is reduced, which is the essential precondition to renewed growth.

Maybe it can be done this way.

Addendum

In a recent post, Bilbo provides this graph:

That dark blue cloud there, beyond the purple mountain and above Red Beach -- that dark blue cloud is "Fed Agency Debt Mortgage-Backed Securities Purch." Assuming I understand the hobbit-speak, that's the bad mortgages the Fed bought up. Eliminate that dark blue cloud, and the Fed's balance sheet returns very nearly to the size it was before this whole mess started.

Those are the mortgages I want the Fed to pay off.

Who would receive payment? The Fed.

Forgive us our debts.

Change the Rules

We use dogmatic, open-ended rules of thumb in our economic thinking, rules of thumb like "Printing money causes inflation" and "Credit use is good for growth."

The inflation rule tells us that if there is inflation, they must be printing too much money. But the rule doesn't ever have us check to see if there is even any money left.

The credit rule tells us that if we want the economy to grow, we need to use more credit. This rule doesn't ever have us stop to see if we've used too much credit and accumulated too much debt already. The rule just tells us to use more credit.

These two rules of thumb together created the problems in our economy. We always restrict the quantity of money, and we always use more credit.

It is time to change the rules.

Art says... (graphic form)

I WANT THE FED TO PRINT MONEY...

...AND USE IT TO PAY OFF DEBT

Krugman says... (long form)

When lenders suddenly decided that they had lent too much, that debt levels were excessive, debtors were forced to slash spending. This pushed the world into the deepest recession since the 1930s. And recovery, such as it is, has been weak and uncertain — which is exactly what we should have expected, given the overhang of debt.

The key thing to bear in mind is that for the world as a whole, spending equals income. If one group of people — those with excessive debts — is forced to cut spending to pay down its debts, one of two things must happen: either someone else must spend more, or world income will fall.

MUGGED BY THE DEBT MORALIZERS, 31 OCT 2010

No, Paul. Keep your eye on the ball. "The key thing to bear in mind" is that this is "exactly what we should have expected, given the overhang of debt."

The problem is debt.


My plan is simple.

I want the Fed to print money and use it to pay off debt.
And I want'em to do it until the economy is growing again.