The shape of this one interests me:
1. Increasing until about 1970.
2. Increasing more quickly and more unstably until about 1986.
3. Declining until about 1992.
4. Increasing with regularity until the crisis.
5. Decline.
It isn't the last stage that intrigues me. We're well aware of that.
And it's not the increasings that intrigue me. Debt increases when the economy grows. That's normal.
Though why the rate of growth of debt must increase, why we think it is okay, this is a question worth asking.
I am fascinated by the decline in the rate of debt growth, from 1986 to 1992 or thereabouts. Why fascinated? Because debt growth slowed significantly, and we didn't have a crisis like we had with Lehman and all. And then a golden decade started soon after. That's why. Fascinated.Wasn't there a revision of the tax code in 1986?
12 comments:
The Reagan admin was a treasure trove of tax code changes. Taxes were massively reduced twice and raised 11 times. The net effect was a transfer of tax burden from the most well off to the least well off. It was enormously regressive.
I have no idea how this plays into the reduction in debt growth.
And i wouldn't call the 90's a golden decade. More in the range of bronze.
Cheers!
JzB
1986-1992 is a case of an increasing household saving rate following a housing bust in 1987.
If you go look for a graph of sectoral balances for the same period as your graph I'm sure you could spot some correlations.
For example:
http://www.ft.com/cms/s/0/a3beaa64-5001-11dc-a6b0-0000779fd2ac.html#axzz1MnnsPMjk
Basically from 86 to 92 the household sector is increasing its savings, and the firms sector is increasing borrowing.
But most important, the government sector is reducing its deficit 1982 to 1987, which is the reason for the slow down. This causes the 1987 bust and then the government starts ramping up its deficit (automatic stabilisers) from about 1987. THis eventually sets the scene for the late 90s boom.
Government debt is money, and if you showed government debt on your chart, the situation would become clear, I think.
But most important, the government sector is reducing its deficit 1982 to 1987, which is the reason for the slow down.
Liminal --
Who told you that fable? This is the very opposite of the truth. Yrs from 82 to 87 gave us the biggest deficits ever seen, up to that time.
Actual dollars.
Pct of GDP. (Exclusive of New Deal and WWs I and II)
Pct of GDP with detail.
Yellow: expenses.
Green: revenues
Red/Blue: net, per Presidential party
Brown: YoY GDP % change
You have to get your basic facts straight before you start drawing any conclusions.
Cheers!
JzB
From what I can see the deficit as %gdp has a local peak about 82/83, then declines until about 1989/90 before ballooning in the early 90s after which it declines all the while until 2003.
The main difference pre and post 1987 is of course financial liberalisation.
I should add to the above, the decline 82-87 in the deficit (as measured in 1996 dollars)
Source here : http://traxel.com/deficit/
My bad for not being specific what I was talking about tho.
Hold on there Lim...
You're talking about the deficit as a percent of GDP, where the numerator is measured in constant dollars. And, evidently, the denominator is not?
I never saw such a calculation.
Nice catch, Jazz.
Yup, you're both right, 100%. Was mixing incompatible charts. Doh (doffs hat)
Certainly casts doubt on my initial assertion too. Perhaps the answer is alot simpler. To whit:
volckersqeeze
Lim -
Sure deficit/GDP is less in 87 than in 82. But it is greater than almost any year outside the Reagan/Bush I era, except for now when GDP is depressed.
The detail is unimportant, as is the rate of change. What is important, and blows your argument up, is that deficits were historically large every year from 82 to 87 (and beyond, but that's beside the point.)
Well yes JB/NAE you're right about my mixing my charts. Guilty as charged. Also guilty of a hasty response without engaging brain - often the result of responding when at work!
Try this for the answer to arthurs question - volcker squeeze. A graph or US real interest rates should confirm...
Tried to submit one earlier but it didn't make it through.
Liminal...
"Tried to submit one earlier but it didn't make it through."
Yep. Stuck in the spam filter. Two of 'em, identical. I free'd'em up and then deleted one. That must be one strange spam-algorithm...
"...guilty of a hasty response without engaging brain - often the result of responding when at work!"
Oh I do that all the time. It's painful. Anyhoo, in my own afterwork, I took another look at your first comment above. I find it quite interesting.
Lately I've been looking at fragments (like 1986-1992) of trends. But I was surprised to find something of an uptrend in the midst of the 1980-2008 downtrend in the savings rate.
Everyone (except LH!) says there was a decline in the savings rate since 1980. And there was, but there was also the uptrend you point out -- all the more significant because of the larger downtrend.
The timing of that brief uptrend is most significant and relates to a post I have been writing. Thanks!
"But I was surprised to find something of an uptrend in the midst of the 1980-2008 downtrend in the savings rate."
I think that uptrend can be explained by the very high real interest rates of that period, far higher than for example the kind of real interest rates than obtained during say the 19th century.
If the household sector is in surplus then high interest rates will increase inflation rather than decrease it because the high rates increase their purchasing power.
And it is the household sector - consumers - who power everything including the earnings of the corporate sector and the tax take of the public sector.
Everything comes from the household sector because this is where spending resides. Of course, in this day and age one must always be mindful of the GLOBAL household sector (and indeed other global sectors) when viewing any charts of this or that country, given capital mobility.
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