tag:blogger.com,1999:blog-2098432983500045934.post5685424999085517751..comments2024-03-12T22:19:32.339-04:00Comments on The New Arthurian Economics: Similarity (addendum)The Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-2098432983500045934.post-16160443883195013512012-03-23T15:49:11.845-04:002012-03-23T15:49:11.845-04:00I think we're in the same ballpark on the gene...I think we're in the same ballpark on the general idea. I may be a little more open to the idea that increased credit has benefits to economic growth that should be weighed when setting thresholds , but broadly I agree , for the U.S. anyway , that the debt/gdp levels we had during the '60's would be a good target to aim for.<br /><br />Things have changed enough since then that even those levels of household debt/gdp , for example , may be too high. We're a much more unequal society now , and I suspect that high inequality tends to reduce the safe aggregate household debt/gdp threshold , at least when credit is widely available ( as it was during the housing boom ).<br /><br />Switzerland has a very high household debt/gdp level , but many analysts don't see that as a problem because most of the debt is carried by the relatively wealthy / high income , who are the only ones that can afford - and thus qualify for the loans - to purchase houses.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-85483476418164201362012-03-23T03:52:24.783-04:002012-03-23T03:52:24.783-04:00Nonny, let me try to magnify the difference betwee...Nonny, let me try to magnify the difference between you and me.<br /><br /><b>"I agree that it's better to err on the side of caution when setting the thresholds , at least until we get updates to the work of Ceccheti , R&R , etc..."</b><br /><br />I don't see my position as "erring on the side of caution". If there is any truth to the <a href="http://newarthurianeconomics.blogspot.com/2012/03/i-got-this-one-by-accident.html" rel="nofollow">debt productivity</a> analysis, then certainly increasing the debt/GDP ratio does not boost GDP growth, and quite possibly it hurts growth.<br /><br />If private debt at 180% of GDP creates a crisis, surely debt at 160% or 140% or 120% of GDP might be creating problems for the economy -- cost problems, resulting in sluggish growth and creating inflationary pressures, both. Resulting in what? <i>Stagflation</i>. And when did that problem first rear its ugly head? 1970, maybe? Maybe private debt at 90% of GDP was creating problems for us already in 1970.<br /><br />If debt is the <i>problem</i>, we will never solve the problem until we <a href="http://newarthurianeconomics.blogspot.com/2010/02/cut-wut.html" rel="nofollow">take debt out at the knees</a>.<br /><br />My view is that the accumulation of debt hinders growth, and therefore the accumulation must be reduced. My target is to get back to the debt/GDP ratio we had in the early- to mid-1960s. Or, preferably, the debt/M1 ratio. (In truth, my goal is to <a href="http://newarthurianeconomics.blogspot.com/2010/01/laffer-limit.html" rel="nofollow">find the most productive range</a> for the debt/M1 ratio, and then stay within that range. In real-time, the early- to mid-1960s had the most productive ratio. But technology and habit and experience and conditions have evolved since then, and a much higher ratio might be best today. But not as high as we are. still.)<br /><br />In the meanwhile, any decline in the ratio is a step in the right direction, <a href="http://newarthurianeconomics.blogspot.com/2010/02/gimmie-some-slack.html" rel="nofollow">opening a door</a> to "miracle" growth for a few years, as the 1990-93 decline on Graph #1 above <a href="http://newarthurianeconomics.blogspot.com/2011/07/debt-relatives-rise-and-fall-of-non.html" rel="nofollow">opened the door</a> to the late-1990s boom.The Arthurianhttps://www.blogger.com/profile/16501331051089400601noreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-4291012209831822262012-03-21T23:04:48.161-04:002012-03-21T23:04:48.161-04:00I agree that it's better to err on the side of...I agree that it's better to err on the side of caution when setting the thresholds , at least until we get updates to the work of Ceccheti , R&R , etc. , that can estimate the effects of the interactions of sectoral debt levels on overall stability. Right now it seems we have some numbers on the individual sectors , but not a good handle on what the combined total can safely be.<br /><br />I just wish we were as far along in the discussion as the EU appears to be. Can you imagine the cries of "central planning !" and "economic micromanagement !" if we start talking about debt thresholds for the private sector in a serious way ? <br /><br />According to the EU Commission paper , they intend to have guidelines for the financial sector as well by the end of 2012.<br />The U.S. and U.K would have to be dragged , kicking and screaming , into any such discussions.Anonymousnoreply@blogger.com