Lorraine on MMT:
"Seemingly this is the most assertive claim of MMT, that you will have some combination of public and private debt, no matter what."
Well that's a realistic conclusion on their part. But there is more to it than having "some combination". I don't know what they look at. I look at the ratio of private debt to public debt -- the "P2P" ratio:
- A Pictorial History: Private and Public Debt
- "The ratio of private debt to public debt affects economic growth."
- "the P2P ratio plays a major role in determining economic growth."
- "...
a low private-to-public debt ratio is associated with a high rate of
RGDP growth. And a high P2P debt ratio is associated with a low rate of
RGDP growth."
- "We
get the most output from an increase in debt when we have about $1.50
of debt for every dollar of GDP. And the best distribution of that debt
is to have non-Federal debt between two and three times the size of
Federal debt. So, for one dollar of GDP we want 40 to 50 cents of
Federal debt and $1.00 to $1.10 of debt other than Federal. These are
ballpark targets for maximizing economic growth."
But don't forget that the increase of private debt in a low P2P environment, which so effectively boosts growth, also increases the P2P ratio and reduces the benefit of subsequent increases in private debt. So we need new policy, to encourage the accelerated repayment of private debt and maintain the high-growth environment. Such a policy would also act as a fiscal-side anti-inflation tool, to complement interest rate policy.
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