I corrected for inflation too soon. That has to be it. That's the only change I made to the numbers. All the other stuff was just getting the numbers, or showing them.
Couple days back I looked at Gross Federal Debt as a Percent of GDP. Looked for a trend. Found one.
Or invented one. Whatever.
Looked at that trend, long-term. And wanted to find the economic growth that would have kept the federal debt number going down, kept it following the trend.It's backwards from what everybody else does. Everybody else looks at Federal Debt Relative to GDP and says the federal debt is too high.
But the original complaint, remember, was that economic growth was too slow: GDP was not increasing fast enough. So to me, backward is the right way to go. Rather than focusing on squishing down the federal debt, I want to consider the growth we would have needed, to make the federal debt seem size-reasonable. Then I want to look at that growth and see if it is realistic.
Anyway, I'll make a new spreadsheet. And this time I'll correct for inflation later.
I'll keep the original sheet called TABLE, which has the source numbers untouched.
I'll keep my Sheet1, where I develop the numbers for the exponential trend.
And I'll keep my Sheet2, where I develop the Gross Hypothetical Product. But I'll delete from that sheet the GDP Deflator and the inflation-adjusted GHP. And I'll delete Sheet3 and Sheet4, where I used the inflation-adjusted numbers and my graphs went astray.
On Sheet2 I'm adding the column "Gross Federal Debt as a percent of GHP." That's redundant, because it'll give me the exponential trend numbers again. But at least I can do a graph, and I have numbers to use for GHP.
Let's compare GHP to GDP. No inflation-adjustment. The GDP numbers -- actual, or "nominal" this time -- again come from Measuringworth.
Wow. These numbers are big. The GHP makes the GDP look small. It doesn't look like "realistic" growth. What this means I guess is that debt really took off. And you can see some kinks in the red line, where it suddenly starts going up faster than it did before. That's driven entirely by the growth of federal debt.
That's not something you'd normally hear me say. But I have to say what the graph says. Still, it's much too early to draw any conclusions.
Let's cut off some of that right end of the graph, and look at it where the lines are closer. I'll stop this time at 1982:
There is a definite break with the trend. A closer close-up shows the break occurring between 1974 and 1975 or -- more accurately -- shows the change in 1975 and after:
"That is enough for today!"
7 comments:
What comes to mind for me is that this can be seen as prior to 75 govt debt stayed in line with growth, meaning all govt debt is productive. Where the break comes is when govt debt just becomes more tax free income for someone and not driving production. It looks like what you would expect to see if more and more people started to just live off interest payments and not do productive work.
I'm sure this story can be told in at least two different ways however, if you buy my interpretation. There are those who will point to the rise of people living on the dole at the lower income portion of the spectrum and cry "lazy nanny staters" While others will point to increased financialization resulting from the pure overleveraging of govt bond income in large financial institutions. As Mitchell and Mosler point out it is the riskfree income rates set by govt bonds that are the backbone of all financial transactions ( Ill try to find it but I seem to remember Randall Wray saying that in fact the longterm real return on assets ends up being the risk free rate set by the govt) Some of those risk free rates were double digits in the late 70s early 80s. Thats a lot of income without doing anything.The top end of town has had a massive increase of their work free income since the mid 70s.
Oh, good. I was worried that this post might be too "mathematical" to be anything but boring. But you made a good comment on it Greg, so maybe the read wasn't too rough!
I think I pretty much agree with you all the way through, though I would probably say it a different way. I'll get back to you after work...
What comes to mind for me is that this can be seen as prior to 75 govt debt stayed in line with growth, meaning all govt debt is productive.
There are those who claim that deficit spending does not provide the stimulus it once did for our economy. I have never looked at the numbers on that, and probably wouldn't know how to evaluate them if I did. But despite my love of Keynes, I think there is probably some merit to their claims. This means there was a change from YES deficits are effective, to NO they are not. Your "prior to 1975" and my graph sort of show that change. And now I better understand your phrase "debt is productive."
Where the break comes is when govt debt just becomes more tax free income for someone and not driving production. It looks like what you would expect to see if more and more people started to just live off interest payments and not do productive work.
Keynes wrote of the harm done by "rentiers" which is an odd word but I think it refers to people living off interest payments and doing no productive work. The harm that is done, my view, is they are a cost. They are the cost of facilitation, but are not productive, as you say. When I speak of "the factor cost of money" these rentiers are the people for whom that cost is income.
The people with great quantities of money to lend are in fact competitors for the Federal Reserve.
Yes, they ARE competitors to the federal reserve. Thats a very effective way of looking at it think. If you see this big pool of private money sitting there uninvested in productive enterprises, simply playing the roulette wheel of orange juice futures, oil futures, stock indexes, distressed bonds blah blah blah, that pool becomes more and more interested in perpetuating itself. That pool becomes primarily interesting in NOT eroding. That pool will do all in its power to keep the govt from making cheap loans to potentially productive enterprises because ultimately that pool does not just want to trade with itself, that pool wants and needs others outside that pool to want the things it has which is why, I think, that over the last few decades trades on futures in commodities have become deregulated. The stock market has been wrung of all its real profit potential (I saw somewhere where the dow passed 10,000 back in late 90s for the first time so it is up only 20% in about 11 years) These large pools wanted to benefit when you went and bought orange juice or coffee. They dont want to actually purchase the large quantities of soy beans in their contracts but they want you to have to pay the premium on their winning bet, and we are.
This is the crux of the argument I was making with winterspeak that this"saving" is the problem. He says if you buy into MMT than you can never call saving a problem.
I see this saving though as acquiring more and more power over macro policies and requiring more and more inflation protection measures form the monetary authorities. The bigger it gets the more influence it has. No individual saver is wrong and is simply looking out for self, but this accumulation acquires new powers that change the dynamics I think.
Savers should stop thinking they have any right to inflation protection, at least as it is currently conceived. If you want something buy it now. Dont act as if your forgoing of buying something now is somehow an action we should all be grateful for. If you dont need all that you are capable of purchasing? Great for you, you are ..........LUCKY (not brilliant, necessarily) It would be very productive for your society IF you took that surplus and invested elsewhere but if you insist on too much for your efforts you are becoming more parasitic than model citizen and since money is created at will by our societies institutional structures we'll just invest without you, thank you very much.
I know I'm probrbly the only person who would voice my views on savers in such terms but this is how I see it. Capitalism works great..... until it stops working great. It needs restarting and re designing
Saw this today
http://economistsview.typepad.com/economistsview/2011/02/the-great-decoupling.html
Wonder how it fits in with this topic.
First --
Note that the graph refers to the period 1947-73. The exact same start- and end-years are identified here as "the golden age of postwar capitalism." Ross Perot also saw 1973 as a turning-point.
1973: The date is one to be remembered, like 1492 or 1776 or November 22, 1963 or September 11, 2001.
Second --
The change in federal debt on my graph appears in 1975 and after. Not in 1973. I intend to make the argument that the increase in federal debt is a slightly delayed response to the problem, not the first cause of it. All in good time.
Third --
In the link, Mark Thoma refers to Lane Kenworthy referring to Tyler Cowen's explanation of the decline since 1973. This is gonna sound condescending, but I can't help it. It is good that these economists are looking back to the start of our time of troubles to discern the causes. But it is bad, because they are economists and they think like economists.
My explanation -- the excessive accumulation of debt -- can be seen if you look at our economy now or in 2008 or at any time back to the early 1970s, if you look. If you don't look, you have to be a clever economist and invent an explanation, like suddenly there was a slowdown of innovation, out of the blue.
My typical reaction to a graph like the one you link to, is to add it to my collection of evidence that 1973 was the turning point. And then I throw away the explanation provided by the economist.
And the data on the graph -- the decoupling of median income growth from economic growth -- this is only one of many ways we can look at numbers to see the turning point. There is an assumption, but no evidence that this particular arrangement of the numbers is significant, probably because people think their income is the most important part of the whole economy. The most important, most useful part of it to us is one thing. The underlying forces at work are another.
The fact that our income is important to us is a reason to take an interest in economics. It is not an explanation of trends.
Greg, from your earlier comment --
This is the crux of the argument I was making with winterspeak that this"saving" is the problem. He says if you buy into MMT than you can never call saving a problem.
Yeah, I saw a similar attitude about savings in remarks by Tschäff. I don't understand it. An imbalance is an imbalance. An excess is an excess.
I know I'm probably the only person who would voice my views on savers in such terms but this is how I see it.
From Ohm's of 1 Feb:
China has recognized that its massive savings rate comes about from an income distribution where many get to keep way, way more they can spend. Indeed the Chinese macro savings rate today is a whopping (some would say, ridiculous) 45%!
Everybody wants economic security, even you and me and Ohm and China. But I disagree, I think we disagree with those who immediately draw a conclusion from that fact.
When the accumulation of savings becomes disproportionately large, one is bound to see economic and financial problems arise.
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