"It isn't bringing the public debt down that makes the economy grow. It is the vigorous economy that brings the public debt down"

In yesterday's discussion, red was private debt; blue was public debt.

Yesterday's conclusion:

Red line rising, blue line falling, growth is good. That's why some people say we must get the blue line down, get the Federal debt and deficits under control and bring them down. That's backwards, though. It isn't bringing the blue line down that makes the economy grow. It is the vigorous economy that brings the blue line down even though the public debt is actually increasing. The vigorous economy grows faster than government debt, and that's what brings the blue line down.

I don't like to make naked announcements like that. Facts are facts, but you never know. So I always like to look at the data, make sure I got it right, and show my work.

It is the vigorous economy that brings the blue line down even though the public debt is actually increasing. The vigorous economy grows faster than government debt, and that's what brings the blue line down.

1. On yesterday's graph 3, the blue line was going down from 1948 to 1978, dates approximate. That is the period examined here.

2. The public debt was actually increasing during the 1948-1978 period:

Graph #1: Gross Federal Debt in Billions (1948-1978 in Red Box)

Yup. Increasing.

3. The economy grew faster than the government debt:

Graph #2: GDP Growth Rate minus Federal Debt Growth Rate (1948-1978 in Red Box)

Yup. The blue line is above zero when GDP growth is faster than Federal debt growth. The blue is below zero when GDP growth is slower. And the blue line is at zero when  the two are equal.

The blue line is above zero for almost the whole 1948-1978 period. So we know that GDP growth was almost always faster than Federal debt growth during that period.

Yup. The economy grew faster than the government debt.

4. Yes, it is the vigorous economy that brings the blue line down even though the public debt was actually increasing in the 1948-1978 period.

So as I said yesterday: The vigorous economy grows faster than government debt, and that's what brings the blue line down. The people who act as though the fate of the world depends on cutting Federal spending, those people are wrong.

Maybe now we can move on to the actual problem?