Saturday, April 16, 2016

Those are the numbers!

The series starts here

You mighta seen this graph before:

Graph #1: Economic Growth is better when the Private/Public Debt Ratio is Low
The trendline runs from 4% annual inflation-adjusted-GDP growth down to 2% annual. Four percent or a little more. Two percent or a little less. Those are the numbers.

Those are the same numbers people use when talking about good and bad economic growth in general in the U.S.

Okay, it stands to reason that they are the same numbers, because the vertical axis shows real growth. The numbers are not made up.

But it's not like the dots only occur in the 2% to 4% window. The dots are all over the place, from more than 8% annual to near 3% below zero. 40% of 'em are above the 4% line. Yet the trend line is right there, in the range we expect growth to be.

It's not simply that this is the range we expect for economic growth. There's more to it than that. In a scatterplot focused on some detail (like the P2P debt ratio) there is no reason to assume you'll get the same range of trend values you get when you look at the data chronologically. The dots could have ended up grouped so that the scatterplot trend goes from 6% to zero, for example. But that didn't happen. Or the trendline could have been flat. But that didn't happen, either.

The trendline we actually got shows that we get the kind of good growth we expect when private debt is only a little more than public debt. It shows we get the kind of bad growth we expect when private debt is a lot more than public debt.

It shows something that gives us the growth we expect.

We're not just looking at economic growth. We're looking at growth as influenced by the level of P2P (the private-to-public debt ratio) and we come up with growth in the range we expect. This tells me that the P2P ratio plays a major role in determining economic growth.

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