An Equally Plausible Future?

From Economics One: Exploding Debt Still Threatens America by John B. Taylor:

Back in May 2009 I wrote “Exploding Debt Threatens America” in the Financial Times. Unfortunately the federal debt is still exploding, but fortunately we are learning more about the threat thanks to research reported and carefully explained in a new piece by my colleague Michael Boskin.

From John B. Taylor's colleague Michael Boskin's A Note On the Effects of the Higher National Debt On Economic Growth (PDF, 8 pages):

Graph #1: John B. Taylor's colleague Michael Boskin's Figure 1

John B. Taylor's colleague Michael Boskin writes:

The large deficits and expansion of the national debt since the end of 2008 are unprecedented since World War II (Figure 1).

John B. Taylor's colleague Michael Boskin got me thinking...

Graph #2: Graph #1 after a little Cut & Paste

Why not?

I'll tell ya why not. At the time of the major peak on the left there, at the end of World War Two, there was relatively little debt in the private sector. There was plenty of room for private debt expansion. And when it came, the private debt expansion brought with it vigorous economic growth. Pushed GDP up. Pushed the trend down.

Today, there is much, much more private sector debt, relatively and otherwise. This debt prevents further expansion of private debt, because people think they have too much debt already and they want to reduce it. So we are most unlikely to see the sort of increase in private debt that it would take under present policy to duplicate the vigorous growth we had after the Second World War.

None of this has anything to do with the size of the Federal debt.