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uring the golden age and 6 for the new economy that s a total of 40 years of prosperity out of 100 years and more shown on the graph forty good years sixty bad years we can do better it should be easy to do better the graph provides clues 1 prosperity only happens when the plotted line is going up the line goes up when private debt is growing faster than public debt but prosperity does not begin until the ratio is low enough to let it happen 2 when the plotted line gets too high prosperity gives way to hard times 3 in hard times there is no relief until the plotted line is low enough for prosperity to begin again these things the graph shows what the graph does not show is that political debt ceiling strategies by forcibly reducing federal spending will ceteris paribus increase the private to public debt ratio and move us away from the low that we need to reach so that prosperity can begin again at may 24 2023 1 comment email this blogthis share to x share to facebook share to pinterest labels debt ceiling 2023 prosperity monday may 22 2023 gross federal debt as a percent of actual and golden age trend gdp the graph uses annual data so there is nothing yet for 2023 the graph shows the federal debt for 2022 as 121 1 of gdp blue it shows the federal debt for 2022 as 65 7 of what gdp would have been red if gdp growth had not fallen behind its 1946 1974 exponential trend in other words if gdp growth continued at the 1946 1974 rate the gross federal debt as of 2022 would be less than 66 of gdp not more than 121 i did not change the gross federal debt numbers i m not saying the low percentage is realistic i m saying it would be realistic if policymakers knew what they were doing and could maintain decent economic growth so anyway all this nonsense about the debt ceiling but if gdp kept growing at its 1946 1974 trend our massive federal debt today would be only about half the size it is as a percent of gdp people who complain that the federal debt is too big unfailingly offer percent of gdp numbers as proof of their claim but those same people say gdp growth is too slow and well they are right about that but then to turn around and show the federal debt as a percent of this slow growing gdp well it makes the federal debt look bigger than it really is so those people are either liars or just plain stupid it s not that the federal debt grew all that fast the federal debt grew yeah but not as fast as it looks because gdp growth has been so slow for so long as a percent of gdp the gross federal debt would be only about half what it is today if gdp had maintained its 1946 1974 growth rate hey here s my spreadsheet at dropbox at may 22 2023 1 comment email this blogthis share to x share to facebook share to pinterest labels debt ceiling 2023 thursday may 18 2023 for the irony and for the debt ratio i searched google scholar for analysis of federal debt growth without quotes on the first page of results i found in search of an optimal debt ratio for economic growth by david j smyth and yu hsing at wiley from contemporary economic policy volume 13 issue 4 october 1995 i had high hopes from the abstract results also indicate that the optimal debt ratio is 38 4 percent for debt held by the public and 48 9 percent for total debt thus the current 1993 debt ratios of 50 9 percent for the debt held by the public and 68 2 percent for total debt are far greater than the desirable levels with percentages like that and especially as they mention debt held by the public i figure when smyth and hsing say debt ratio they mean federal debt relative to gdp or maybe relative to gnp as their data is from 1993 the change from gnp to gdp as the standard measure occurred in the early 1990s i recall but i am fuzzy on the exact date anyway my snide remark of the day is this as the ink was drying on their report the new economy of the latter 1990s was just getting under way the new economy of the latter 1990s is the one alan greenspan described in 1998 as without question one of the best economic performances in our history so we got super good growth even though smyth and hsing say the ratio of federal debt to gdp is far greater that it should be for optimal economic growth to be achieved the economy proved them wrong see i think they are using the wrong debt ratio i think they should have used the debt ratio that i have been showing lately the private debt to public debt ratio but even if i m wrong about their debt ratio and my debt ratio and things in general it is still true that we got optimal or better economic growth almost immediately after smyth and hsing said the debt ratio was preventing that outcome i love the irony at may 18 2023 1 comment email this blogthis share to x share to facebook share to pinterest wednesday may 17 2023 polarization from economic harmonies by frédéric bastiat 1850 at the online library of liberty as great as is the difference between the plowshare that feeds and the sword that kills so great must be the difference between a nation of workers and a nation of plunderers it is not possible for there to be any common ground between these two they cannot have the same ideas the same standards the same tastes the same character the same customs the same laws the same morality or the same religion 1850 was part of the period that keynes called the greatest age of the inducement to investment it was around to the peak of the cycle of civilization as i see it from that lofty point bastiat could see great differences between societies we also can see such differences but we are beyond the peak and near to what no one dares call a dark age so we don t have to imagine those differences we see them every day as we are in transition from the high of the cycle to the low if you stand at the north pole and i stand at the south we both stand on our feet but if i could see you i would see that you look upside down as you would me each of us thinks ourself rightly positioned on top of the world and the other guy all wrong the problem is economic decline when we cannot get right by righting the economy we lean into it we become disoriented and we find ourselves we find the other guy not only wrong but inexplicable the only solution that i can see is to improve the economy to the point that everyone wants to be part of it only when the economy is good can we see eye to eye at may 17 2023 no comments email this blogthis share to x share to facebook share to pinterest tuesday may 16 2023 small picture solutions don t solve big problems we ve been mopping up water on the kitchen floor for fifty years now does anyone think we should have been looking for a leaky pipe after fifty years of failure am i the only one who says balancing the budget by cutting federal spending is the wrong plan people say it is spending in excess of revenue that creates deficits even economists say it it is true of course the arithmetic is correct but it is a small picture view the trouble with the small picture view is surprise it doesn t show the big picture if you balance your budget it can affect your favorite restaurant because you don t go out for dinner anymore it can affect the deli where you no longer stop for coffee on your way to work that s three small pictures yours the restaurant s and the deli s your small picture view ignores two of them or dozens of them or hundreds but those dozens or hundreds then have to consider adjusting the small picture of their budgets and that can affect you or your neighbor or dozens or hundreds more people and so on that s a glimpse of the big picture if you spend a dollar it has a ripple effect if you don t spend a dollar it has a ripple effect everything that happens in the economy affects the economy the big picture is not as simple as spending in excess of revenue raising taxes and cutting spending impact everyone s small picture if there is an imbalance in the big picture a monetary imbalance perhaps then small picture solutions at best only move the problem to someone else s budget like when you squeeze a balloon at one and it gets bigger at the other or like the whack a mole fifty years and counting it is time to re think the plan we need a plan that will work at may 16 2023 no comments email this blogthis share to x share to facebook share to pinterest labels debt ceiling 2023 fallacy of composition whack a mole monday may 15 2023 gw message to the house of representatives pay without delay george washington 1793 message to the house of representatives no pecuniary consideration is more urgent than the regular redemption and discharge of the public debt on none can delay be more injurious or an economy of the time more valuable from treasury direct history of the debt look under the 18th century at may 15 2023 no comments email this blogthis share to x share to facebook share to pinterest labels debt ceiling 2023 sunday may 14 2023 thomas palley interview in jacobin at jacobin the forgotten case against milton friedman an interview with thomas palley i love it when economics is exciting right from the opening paragraph i love the palley interview heh right from the title i love the interview every case against milton friedman rises immediately to the top of my reading list and i think palley s informal title of the interview is even better than the title jacobin used thomas palley calls it inflation the phillips curve and the forgotten case against milton friedman when i came to this part i had to repeat it here well if you go back to the early 1960s there was a widespread belief that there was a systematic trade off between inflation and unemployment that policy could use people believed in the structural phillips curve friedman questioned the long run existence of that trade off using very conventional economic theory and then as i interpret it the economics profession willingly went along with the story that friedman was right and there s a reason for that friedman had based his case on conventional theory and the zinger and the economics profession is not in the business of challenging conventional theory in fact the exact opposite is true it s in the business of defending conventional theory palley also says in my own work i talk of the backward bending phillips curve which generates an optimal rate of inflation that i call the minimum unemployment rate of inflation or muri the rate of inflation that will deliver the minimum unemployment rate i think that is what policy should aim for and i would say it s somewhere between 3 percent and 6 percent well you know i m gonna have something to say about that at may 14 2023 1 comment email this blogthis share to x share to facebook share to pinterest wednesday may 10 2023 financial soundness indicator nonfinancial corporations total debt as a percent of equity level an interesting item https fred stlouisfed org series bogz1fl010000286q since 1980 it looks like this financial soundness riding high up near 100 since the financial crisis put fearofgod into the nonfinancial corporate sector yeah maybe but this is how it looks since start of data i always want to know what happened before that at may 10 2023 no comments email this blogthis share to x share to facebook share to pinterest tuesday may 9 2023 hypocrisy and irrelevance a thought on the debt ceiling nonsense this impasse is not about debt when america s debt to gdp ratio went up by 40 to bail out wall street the republicans did not even squeak yanis varoufakis 2013 a similar thought left by a friend years ago on my old blog a large portion of public sector debt was recently absorbed from the private sector by the public sector nanute 2011 to me these are statements about the hypocrisy of the players in the game of risk that we call the debt ceiling crisis the practice of claiming to have moral standards or beliefs to which one s own behavior does not conform the dictionary says pretense sounds right to me hypocrisy by the way you can see it happen everything goes along normally right up to the end of 2007 then suddenly in 2008 everything changes direction the increase of financial debt suddenly drops off and the increase in the federal debt surges as the government steps in to limit the severity of the collapse graph 1 annual change in federal debt red and the financial sector blue note that debt is measured as end of period values everything looks fine right up to the end of 2007 then suddenly in 2008 finance cuts its losses and the government has to step in to limit the disaster the vertical gray bar represents the recession financial sector debt blue drops from near a 15 growth rate to zero and below maybe we should call that a shrinkage rate now we can t know for a fact what would have happened if the government didn t step in but it is clear to me that it would have been a disaster like the great depression that my dad lived through and his parents my dad was ten years old when that depression hit we can t know for a fact because this time that fact didn t happen but our economy was bad for years after the recession shown on the graph we still had not recovered we still were not back to normal even by the time of covid remember people talking about the new normal that s not the same as normal we never fully recovered it had to be done what the government did it had to be done could it have been done better of course but that s not the question and now after the financial crisis and the disruption that followed and after the covid pandemic where similarly the response was necessary if imperfect now there are tantrums in congress now the government is held up as irresponsible for doing the responsible thing now the federal debt is held up as evidence of irresponsibility hypocrisy is exactly the right word i tripped over nanute s observation went looking for more and found yanis s statement they are right you know yes the federal debt was high even before covid and yes high even before the financial crisis but nobody is subtracting the government s responses to those problems from the federal debt no one is making allowances for those emergencies no one is just trying to be decent let me say yes our federal debt is a problem yes it is but for me the problem is not that that the debt causes well whatever it is the tantrum people say it causes i don t accept those stories for me the federal debt is a problem because we cannot stop the increase not even briefly we are not in control of it i am tempted to say that the economy has a mind of its own and it is making the federal debt increase and nobody believes that the economy has a mind of its own so nobody can figure out what must be done to stop the increase it s almost like we refuse to listen to the economy we refuse to try to understand it we know the economy is bad and that is all we know and you know i think maybe this obtuseness on our part is what spread to the political world so that now we refuse to listen to each other we refuse to try and und...