Look, it's early in the morning yet

It's early in the morning and I have not had my coffee yet but I found something interesting, so here we are. I need you to look at it with eyes that are not wide awake. I don't want you to notice, for example, that the one graph isn't even for the same country as the others. Just go for the interesting stuff. Spit the rest into your napkin, and don't show me.

I found a graph just now at Stumbling and Mumbling. A graph of productivity in the UK since 1800:

Graph #1: Moving 20-Year Average, UK Productivity since 1800
Source: Chris Dillow

There's a peak around 1870, and a peak around 1970.

Dillow's graph reminded me of something, and I went looking. Back in April I showed this graph from bawerk.net:

Graph #2, Source: BAWERK.NET

The GDP growth trend (red) reaches a high point around 1870, and another around 1970. Same dates as Chris Dillow's graph. Ain't that neat?

The blue line on this graph shows total (public plus private) debt relative to GDP. Since the red line serves as the denominator for calculating the blue, you would expect to see the general shape of the red line inverted in the resulting blue line. So we don't need to be impressed by the mirror-oppositeness of the red and blue on Graph #2. I'm okay with that. But GDP growth (red) does reach a high point around 1870 and another around 1970.

These high points mark ends of trends of good growth. On #1 they mark ends of trends of productivity improvement. Those things fit together. (Yes, the trends are very broad-brush. Spit that into your napkin.)

In my April post I also showed this graph, based on data from Steve Keen:

Graph #3: Public (blue) and Private (red) Debt relative to GDP, 1834-2011
Source Data from Steve Keen's XLSX file from 2013

Like the second graph, this one starts in 1834. Like the blue line on Graph #2, on #3 we look at debt relative to GDP. So we should expect to see some similarity of shape between the smoothed lines here and the smoothed line on #2. We do.

But here we take the total debt of Graph #2 and split into public and private components. We see the two halves move in different ways. The blue line (public debt to GDP) tends to crest at just about the same time the red line (private debt to GDP) reaches a trough or low point.

I should say, though, that it's not quite right to call these components "halves" of debt. That word implies they are equal in size. They are almost never equal in size. They are close to equal only when the red and blue lines are close to touching on Graph #3: around 1866, and again for a few years around 1946. After the Civil War, and again for a few years after the Second World War. Private debt is ordinarily somewhat larger or much larger than public debt. That is why the red line generally runs well above the blue.

Look at the more familiar of the two "near equal" periods, the more recent one, 1946. We had a very good economy from 1947 to 1973 or so, a "golden age". During that golden age, private debt (relative to GDP) climbed upward. Public debt (relative to GDP) fell consistently. Only as the golden age came to an end did the public debt decline slow, flatten, and turn to increase.

That increase has been thrown in our faces every day since, and held to be the cause of hard times.

Myself, I look higher on the graph, where the red line went up all during the decline of public debt, all during the flattening and the upward turn of public debt, and ever since. I say that if the increase in debt is a problem, then let us not forget about private debt. But that's just me.

Meanwhile, "red line rising while blue line falls" means the economy is good.


Earlier on the graph there is another example of "red line rising while blue line falls": a similar crest, decline, bottom, and increase in public (blue) debt. This begins with the crest of 1870. And all during those four stages of public debt, private (red) debt was on the increase.

The good economy of the 1947-1973 period appears on the graph as rising red and declining blue concurrently. In the earlier period I find rising red and declining blue concurrent roughly from 1874 to 1898. The last quarter of the 19th century.

Is the last quarter of the 19th century remembered for its good economy? If so, I think I'm onto something with this comparison of private to public debt and "red line rising while blue line falls".

The last quarter of the 19th is characterized as The Development of the Industrial United States, or The Rise of Industrial America. The first of those two sources reports "headlong economic growth":

... the United States underwent an economic transformation marked by the maturing of the industrial economy, the rapid expansion of big business, the development of large-scale agriculture, and the rise of national labor unions and industrial conflict.
An outburst of technological innovation in the late 19th century fueled this headlong economic growth.

(Other people say headlong growth fuels technological innovation.) (Maybe each fuels the other.)

The second source says

Over the period as a whole, American industry advanced rapidly. By 1900 the United States had one half the world’s manufacturing capacity. At the end of the century, it had overtaken Great Britain both in iron and steel production and in coal production.

Growth was good.

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. The people who act as though the fate of the world depends on cutting Federal spending, those people need to talk less and think more.