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I had to interrupt myself. I was writing a post that looks at an old one by Ron Robins. You'll see tomorrow. Meanwhile, this:

Ron Robins' old post is about the growth of debt. Total debt. One of my favorite topics. He tosses out some numbers on debt growth. Then he adds this:

What must be noted is that for the thirty years prior to the late 1970s the credit-to-GDP ratio held steady around 1:1.4.

In other words, about $1.40 of debt, for every dollar's worth of GDP. Pretty low number. Pretty good contrast to Ron's other numbers. But, steady?

You can see evidence of Ron's claim, more or less, in the first graph at ContraHour's old Seeking Alpha post. The graph is a little faint and fuzzy, but it shows total debt at around 150% of GDP in the late 1940s, dropping to around 130% in the 1950s, leveling off around 145% in the 1960s, and rising only slightly in the 1970s -- only slightly, in comparison to debt growth since that time.

ContraHour's Graph

Below is my graph of the same thing. On my graph, the blue line doesn't match the red and gold lines because of changes in the way debt was counted, or something. But it'll give you the idea.

Here's my spreadsheet with sources & numbers.

I added a black box around "the thirty years prior to the late 1970s" to make it easier to focus on the years Ron Robins is focused on in the quote above. So, here's my graph:

Yeah, I guess you could say total debt "held steady" around 140% of GDP for those years. There does seem to be a little bit of "down" and quite a lot of "up" in those trend-lines. But the "up" was gradual, and total debt was relatively low. So let's go with Ron's description: total debt held steady at around 140% of GDP for that thirty-year period.

It is interesting to note that the "golden age" of post-war capitalism lies entirely within the black box. In other words, the years of relatively low debt were very good years for the economy.

Below is another graph with a box around that thirty-year period. This graph is based on the same numbers as the graph above. But this time I didn't just lump all the debt together. I looked at how much government debt there was (relative to private debt) and how much private debt there was (relative to government debt).

Turns out that during the whole period of low and "stable" debt, government debt was decreasing and private debt was increasing. Makes sense, because those were years of good growth, and we use credit for growth, so that you would expect private debt to be on the increase.

What happened, though, is that private debt just kept increasing until the cost of that debt became too much for the economy to take. And that killed off the golden age.

Either that, or total government debt just got too low and somehow that's what killed off the golden age.

I dunno which. But that's what the graph shows.


To Ron Robins I have to say: I like your focus on total debt. And yeah, Ron, I guess you can say total debt (relative to GDP) was low and stable during that thirty-year period. But actually the government's share of that debt was falling the whole time, and the private share was increasing.

Important details.