Friday, March 18, 2011

Here's the Thing (2)

A partial re-post from mine of 15 November. For you, Greg, because "all their theories confirm" that public debt is the problem. Theories are nothing without data. But the data show their theory wrong.

The numbers in context

A couple years back, there was a flurry of excitement over a graph showing that total U.S. debt had reached 350% of GDP. Graph #3 breaks that 350% into its public and private components.

The trend in government debt relative to GDP (the black line) is essentially flat from 1960 until the Paulson Crisis. And all that time, private debt (the red line) was climbing. So, if the increase in debt relative to GDP is a problem, the fault lies entirely with the private sector.


Greg said...

I hope I didnt give you the impression that I believe public debt is the problem. I certainly dont.

I was meaning to mock the economists who clamor about us becoming the next Greece and worry about where Moodys rates our sovereign debt yet never talk about the level of PRIVATE debt.

Your work in this area has been outstanding

Public debt is actually private sector money.

The Arthurian said...

Oh. No, you didn't give me that impression at all. I guess I just went back to the thing that makes the most sense to me: to look at the numbers. To me the numbers are indisputable.

Public debt is actually private sector money.

See, now, Yeah. I think this concept comes from MMT, but I never saw it so well expressed. In order to increase M1, so the private sector can spend and grow, the money has to come from somewhere. And the federal government is the place. This is why I like the "sectoral balances" view... It is indisputable :)

OH... Check the "comments" section on your blog. From the Dashboard, click the COMMENTS link for your Wondering Aloud blog. On the comments page, under the blog title are some tabs. Next under the tabs the two options are PUBLISHED and SPAM. Click SPAM. I think you have a comment from Peter on your Moral Argument Part Three. (I received a copy in my email, because I made a prior comment.)

Not sure that's what is going on, but that's how it looks to me.

The Arthurian said...

...if I was the salesman I need to be, I would say
1. Click the post title to get just the one post.
2. On the Firefox (or ??) menu, click FILE:PRINT
3. Confront the guy at work with the printout.

Greg said...

One of the reasons you never see it expressed that way in the MMT literature is that the MMT guys try to avoid the use of the word money since its an ambiguous term.

Net financial assets (NFA) is how they express it usually. Which in my mind is "net worth" If I take the nominal amounts in my savings account, checking account and 401k and subtract what I owe to various banks, that is my NET financial assets. I also must add the cash in my mattress of course but I think you get the point. Now of course care must be taken when assigning a level of "assetness" of stocks or bonds in a 401k. The price on your statement is only the price at a certain time.

One of the problems I think too many people get into is that they measure their debt vs their INCOME when they should measure it versus their level of savings. Its a problem with economics in general I think because income is not static, or guaranteed to be there tomorrow. Until we have some sort of income guarantee (through a job guarantee) measuring your debt level to income level will always prove to be unstable I think.

Calgacus said...

MMT guys try to avoid the use of the word money since it's an ambiguous term.
An utterly wrongheaded pedagogical and conceptual mistake, at the root of incomprehension of MMT. All terms are ambiguous. Avoiding ambiguous terms means saying nothing at all.

The Arthurian said...

An utterly wrongheaded pedagogical and conceptual mistake

Amen. I've seen "NFA" plenty of times in comments. Caught my eye because it's the name of a local high school. But I had no idea they were talking about money.

Anyway, everyone KNOWS what money is. We need not define it to use it. The only time you have seen me define money, is never; and again (by pure coincidence) tomorrow, in something old.. and I thought about NOT using it precisely because it attempts to define money.

Plus, it is absolutely essential to distinguish circulating money from saved money. The difference between circulating and sedentary is as big as the difference between federal deficit spending and Citibank's reserves at the Fed.

Greg said...

I'm going to have to defend the MMT guys here.

I think the root of incomprehension is the idea that "money" is created at will, out of thin air by the currency issuer, not the idea that certain things have more moneyness to them.

Using terms like currency, credit, asset etc is MORE descriptive and makes people consider what they are actually referring to. If I have a $50,000 bank loan and you have a $50,000 Govt Bond we each can go and get a $50,000 car with it, so they are equally money in that context, but no one would argue that we are in the same net financial condition after the transaction.

This gets at the heart of Arts work on private debt and public debt and calling them both money transactions leaves many people misinformed I think.