"Clearly," Marko says

At JW Mason's new blog, in comments on The Myth of Reagan’s Debt, Marko writes

The counterfactual I’d like to see is what would have happened if debt/gdp ratios ( both public and private ) had been held constant at their 1980 levels. That would at least define a sustainable system.

He adds this thought:

Clearly this would mean new debt growth would have slowed and/or interest payback would have been increased , both of which would have subtracted from aggregate demand.

Clearly -- but only if we hold everything else constant. I don't want to do that. I want to reduce debt growth and do one other thing. I want to increase the quantity of spending-money.

I want to reduce debt and increase the quantity of spending-money. I've showed you the ratio a thousand times:

Graph #1: Dollars of Total (Public and Private) Debt, for Each Dollar of Spending-Money

Obviously it can be done. FDR did it. Plus, it's not on the graph but it has been happening again since 2009 -- mostly by accident, I think. It also happened in the early 1990s, without causing a depression.

Trouble is, we can't increase spending money because it gets parlayed into a ton more debt, because we have the financial infrastructure to do that. So we need to regulate that infrastructure, and/or discourage financial innovation, and/or reduce the demand for new loans, and/or just start paying off old loans faster.

If we design policy so people pay off old loans faster, debt will increase more slowly. Debt might even decrease. But as Marko says, that subtracts from aggregate demand.

That's okay. Think of the subtraction from aggregate demand as a way to fight inflation. An alternative to jacking up interest rates again, like the Fed is getting ready to do. I don't like jacking up interest rates: Jacking up rates is a way to reduce growth and create recession. People have been talking for six years now about how interest rates should be at negative five percent or something like. We can't get there, but we damn sure can't resume the policy of jacking rates up until we get recession. We need a better way to fight inflation.

We have a better way. We have the paydown of debt.

We just need policy to encourage and support the idea instead of working against it. If we can stabilize the debt-per-dollar ratio, we have the policy tool we need for a golden millennium. We want to seek the best level of debt-per-dollar -- the level that best promotes growth -- and we want to keep it there.

It's not difficult.