Thursday, September 29, 2022

Things they never show

This one they do show, and they talk about all the time:

Graph #1: Gross Federal Debt as a Percent of GDP


 But this one you never see. And it's the same debt:

Graph #2: Gross Federal Debt as a Percent of Non-Federal Debt

You never see this one, either:

Graph #3: Non-Federal Debt (red) and Gross Federal Debt (blue) as Percent of GDP

The blue line here is the same shown on Graph #1 -- with a high around 120% in 1946 and a high around 130% in 2020. Those peaks don't look so high now, do they? Not compared to the red line, which shows debt other than the federal debt. You know: business debt, household debt, and state & local government debt, all added together.

Non-federal debt was bigger than federal already by 1952. 70 years ago.

Some people say federal debt is the only one that's a problem. But suppose we're all paying the same rate of interest. Then, if we have two or three or four times as much debt as the federal government, we're paying two or three or four times as much interest. And actually, we pay more than that because the federal government gets the lowest rates.

So in case you are still wondering what the hell I'm showing with these graphs: THE RED LINE IS THE PROBLEM THAT NEEDS OUR ATTENTION.

Saturday, September 24, 2022

Debt and Interest Cost of Nonfinancial Corporate Business


I'm thinking of new-use-of-credit as extra money spent into the economy. And I'm thinking of cost-of-interest as a reduction of money available for current spending. I think the "extra money" will have to be greater than the "reduction of money", or the economy will get no boost from the use of credit.


Sometimes I get lucky. I found data at FRED for interest paid by Nonfinancial Corporate Business. And I found data for the total debt liability of Nonfinancial Corporate Business.

Graph #1: Interest Paid (blue) and Debt Owed (red) by
Nonfinancial Corporate Business

The lucky part is that both datasets are for Nonfinancial Corporate Business. The interest is being paid by the same sector that owes the debt. Lucky, because too often I don't find two datasets I want, both for the same sector.

We can take the interest paid and look at it as a percent of debt owed, to get some idea of the interest rate paid by the Nonfinancial Corporate Business (NCB) sector as a whole. I've seen that rate called the "effective interest rate".

In their Fisher Dynamics PDF, Mason and Jayadev say

The effective interest rate i is total interest payments divided by the stock of debt at the beginning of the period.

For the longest time I didn't think it could be done in a FRED graph. It can be done:

Graph #2: The Effective Interest Rate paid by Nonfinancial Corporate Business

My main reason for looking at the effective interest rate is to see if my choice of data looks right. The pattern shown on Graph #2 is:

  1. Start low
  2. Rise to a 1981 peak
  3. Decline thereafter

That pattern matches the typical pattern of US interest rates since the late 1940s, so I'm happy with my choice of data. Note that the interest data is annual; the debt data is by default quarterly but I changed it to annual using "end-of-period" aggregation.

There is a glitch, however: If you click "Graph #2" in the caption to access the graph at FRED, click "EDIT GRAPH" to view the settings, and look past the three datasets and their units, you will see that below "Modify frequency" it says "Annual" (which is correct), but below "Aggregation method" it says "Average" (which is not the method I chose).

It is possible that I messed up. But I made this graph once, noticed the discrepancy, and made the graph a second time, carefully, conscious of the glitch. So I don't think it's me.

But either way, for my purposes today, the graph is close enough. 


Now I want to go in a different direction. I want to compare the size of interest paid each year to the change in the size of debt. The first graph compared the size of the interest paid to the size of total NCB debt. Now I want to see if the interest paid is more or less than the change in debt, the increase.

Hey, if I borrowed a dollar last year and (in the same year) paid 25 cents interest on my existing debt, I still had 75 cents "extra" to spend. But if I borrowed a dollar and paid $1.50 interest, I was fifty cents in the hole. 

Yeah, I know: If I didn't borrow the dollar I would have been $1.50 in the hole. That is the problem that comes with having debt. And every time you borrow, the hole gets deeper.

Okay. This next graph is a cost/benefit analysis for borrowing by US Nonfinancial Corporate Business. For the years before 1970, hard to see but it appears to be slightly above zero (new borrowing adds up to a little more than total interest paid on existing debt). For the years after 1975, it is clear that the line is almost continuously below zero (the cost of interest is almost always substantially more than new borrowing):

Graph #3: Cost/Benefit of borrowing for Nonfinancial Corporate Business

 Here's a view of the early years, thru 1975:

Graph #4: Cost/Benefit of borrowing for Nonfinancial Corporate Business, 1947-1975

Except for the occasional blip, the cost/benefit of NCB borrowing was continuously positive from 1947 to 1973. From 1975 to 2017 it was almost continuously negative.

In other words, if we think of it as NCB business borrowing in order to pay the interest on its debt, before 1974 there was almost always some borrowed money left over after paying the interest, that could be used to boost business activity and economic growth. But after 1974, after using all the borrowed money to pay interest, Nonfinancial Corporate Business typically still had more interest to pay. The money had to come out of business activity. Maybe they invested less. Maybe they gave smaller raises. Maybe they increased their prices.

Financial cost has been undermining living standards and the growth of output since the mid-1970s. Pass it on.

Saturday, September 17, 2022

Eva von Dassow on NPR

The wife came home from work the other day and said I might be interested in something she heard on NPR. Yup. The Academic Minute of 7 September 2022. The topic: Debt amnesty in ancient times. The speaker: Eva von Dassow of the University of Minnesota.

Highlights from her NPR minute:

  • [In ancient times] it was customary to cancel non-commercial debts from time to time.
  • Like Americans today, the people of the ancient Middle East went into debt to meet living expenses...
  • [Debt amnesty], first recorded around 2400 BC in Sumer, is widely attested in ancient Mesopotamia.
  • It was routinely triggered by the death of a ruler: his successor would raise a golden torch and proclaim the cancellation of debts, as part of his duty to establish justice and equity in his land. The biblical program for regular debt cancellation builds on this practice.
  • In the ancient world, such decrees functioned to restore socioeconomic balance – and the tax base – enough that the cycle of borrowing to survive could start over.

Friday, September 9, 2022

The Magus

Let me quote this again -- Herodotus describing the Persian method of sacrifice to their gods:

To pray for blessings for himself alone is not lawful for the sacrificer; rather, he prays that the king and all the Persians be well; for he reckons himself among them. He then cuts the victim limb from limb into portions, and, after boiling the flesh, spreads the softest grass, trefoil usually, and places all of it on this. When he has so arranged it, a Magus comes near and chants over it the song of the birth of the gods, as the Persian tradition relates it; for no sacrifice can be offered without a Magus. Then after a little while the sacrificer carries away the flesh and uses it as he pleases.

The Magus is interesting. Magus, plural Magi. Now that's a name I have not heard in a long time. Oxford Languages says a Magus is "a member of a priestly caste of ancient Persia." Sounds about right.

But note that "no sacrifice can be offered without a Magus". Then, after the ceremony, "the sacrificer carries away the flesh and uses it as he pleases." I take this as meaning that to make a sacrifice, you must have a Magus present, and the Magus must be paid for his services. After the Magus is paid, you can take your boiled mutton home and have a nice dinner. Or you can put it where the sun don't shine. The priestly class doesn't really care.

The alternate translation doesn't say "no sacrifice can be offered without a Magus". The alternate says:

It is not lawful to offer sacrifice unless there is a Magus present.

It is not lawful to do so. The law required a Magus at every ceremony of sacrifice. Doesn't that seem a little strange? What could be the reason for such a law? 

The reason for the Persian law that made sacrifice without a Magus illegal was to assure a stream of income to the Magi.


The Persian empire was part of Mesopotamian civilization. According to Carroll Quigley:

The first civilization, known to us as the Sumerian or Mesopotamian civilization, began after 6000 B.C., reached a peak of achievement about 1700 B.C., and ended in a series of empires of which the last was the Persian.

In The Evolution of Civilizations Quigley says every civilization has to have a "surplus-creating instrument". It has to have something like capital accumulation. However,

This surplus-creating instrument does not have to be an economic organization. In fact, it can be any kind of organization, military, political, social, religious, and so forth. In Mesopotamian civilization it was a religious organization, the Sumerian priesthood to which all members of the society paid tribute. [p.137-138]

In Mesopotamian civilization, including the Persian empire, the surplus-creating instrument was a religious organization, the priestly class. If you wanted to offer sacrifice to the gods, the Magus had to be paid.

According to Quigley, in a civilization you need a "surplus-creating instrument" so you will have a "surplus" that can be "invested" in the development of "inventions" that keep the civilization growing. In the Persian empire, the Magi and the laws that assured their participation were the source of the surplus.

To tweak a line from The Usual Suspects: The greatest magic the Magi ever pulled was convincing the Persians that the Magus must participate and must be paid.

Quigley again:

In Mesopotamian civilization it was a religious organization, the Sumerian priesthood to which all members of the society paid tribute... In the later period of Western civilization the surplus-creating instrument was an economic organization (the price-profit system, or capitalism, if you wish) that permitted entrepreneurs who organized the factors of production to obtain from society in return for the goods produced by this organization a surplus (called profit) beyond what these factors of production had cost these entrepreneurs.

When the surplus-creating instrument falters, civilization is at risk. But this does not mean boosting the surplus is the answer. It means we must figure out why the instrument falters. This is the step that was skipped in the later period of Western civilization.

Sunday, September 4, 2022

Supply-side economics and the nudge

Every day when I first open my gmail I get this important message:

"Google recommends using Chrome"

Important to google, not to me. To me -- hey, I didn't mind the first six times. I just figured I forgot to click DON'T SWITCH. But finally, I consciously stopped what I was doing and consciously clicked DON'T SWITCH.

The trouble with doing it consciously is: IT IS A DISTRACTION. And as you can imagine, with my shitty memory any little distraction can become a big problem when it causes me to forget the important thing I was doing, the important-to-me thing.

I get distracted all the time. I don't need google contributing to it.

Anyway, I clicked DON'T SWITCH and that was that until the next day, when I opened my gmail and there it was again. Well, the there-it-was-again problem happened about six times, and I decided to get rude.

I don't want to get rude, because that is a distraction, too. I use a computer to enhance what I do. Not for the distractions. Definitely not for the distractions.

But I want to point out that THIS SHOULD NOT BE HAPPENING. I shouldn't have to click my choice repeatedly. Computers are supposed to know better. Computers DO know better. People are dicks. The people who put that shit on my gmail screen are dicks.


Supply-side economics favors the producer over the consumer. Once upon a time people would say "The consumer is always right" but that all went away because of supply-side economics. They thought it was important to make things easier and better for business because, they said, in the 1970s the economy slowed, growth slowed and job creation slowed. They said making things better for business would solve these problems.

It obviously didn't. 

What they should have done -- assuming they were right that the economy slowed in the 1970s -- what they should have done was FIGURE OUT WHY THE ECONOMY SLOWED. Then what they should have done was FIX THAT OTHER PROBLEM, the one that caused the slowing.

Instead, they just decided to make things better for business. That is supply-side economics, and that is what we got.

The other problem I have with google's friendly concern about my browser has to do with the options they give me. The options are YES and DON'T SWITCH.

That's not right. If one of the options is YES the other one should be NO.

YES and NO. I'm sure you are familiar with these terms. I'm even sure google is familiar with these terms. But google didn't use those terms. Maybe they are afraid that you would say Yes or no? No! I do not want google fucking with the choices I make.

They didn't offer "no" as an option. That's part of the "nudge".

The nudge is a little something extra that they provide, to get us to choose the answer they want us to choose. There is a whole science to this, the science called behavioral economics. 

What it is, plain and simple, is behavior modification. They try to trick us into giving the answer they want to get.

Even the YES option, being the default choice, is part of the nudge.

I would recommend resistance, but resistance is futile. If you want this shit to change, then you must take the position that you are opposed to supply-side economics and behavioral economics. Only by changing economic policy can we change the world,
because the world
is shaped by
economic policy.