Thursday, April 25, 2013

I See Red

Marcus quotes Wolfgang Munchau quoting Olli Rehn:

“Carmen Reinhart and Kenneth Rogoff have coined the ‘90 per cent rule’,” he said. “That is, countries with public debt exceeding 90 per cent of annual economic output grow more slowly. High debt levels can crowd out economic activity and entrepreneurial dynamism, and thus hamper growth...”

High debt levels can crowd out economic activity.

It's true, you know. Debt is a problem. Look at the graph:

Graph #1: Debt, debt, and Best-Case Growth
Blue: Gross Federal Debt as a Percent of GDP
Red: Debt Other Than Federal Debt, as a Percent of GDP
Green: Percent Change in Potential GDP as a Measure of Best-Case Growth

The blue line (after about 2010) is what concerns Carmen and Ken.

Me? I see red.

1 comment:

Luke Smith said...

If government debt crowds out economic activity, why do non-government enterprises grab market share, i.e. UPS/FedEx vs US Postal Service.