Saturday, July 9, 2016

Get an Education

Raghuram Rajan:
What is the alternative to creating new mountains of consumer debt? Instead of looking for ways to resuscitate spending by those who can ill afford it, and creating unsustainable bubbles in the process, we need to think creatively about how Americans can acquire the skills they need to enhance their incomes.

Acquire the skills, Rajan says. If your accumulation of debt is too big, he says, get an education. You'll make more income and get out of debt.

Fallacy of composition. It works for the individual. It doesn't work for the economy as a whole. Money comes from somewhere. If we don't borrow it, we have to get it from someone else.

If the stock of circulating money (the money we can get from someone else as income) is insufficient, then the economy does not have the money we need unless we borrow it. This is not a problem that can be solved by education. It can only be solved by economic policy that considers the quantity of circulating money and the level of accumulated debt.

Graph #1: Total Debt per Dollar of M1 Money  1916-2015

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