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!
1 comment:
Again, from the Smyth and Hsing paper:
"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."
Clearly, "debt ratio" refers to federal debt to GDP or the equivalent in other nations.
Now, from the Introduction of "Public and Private Debt: The Historical Record (1870–2010)" by Moritz Schularick:
"In 2007, Spain’s public debt was below 36% of GDP, the overall budget was solidly in surplus and the primary budget balance even posted a whopping surplus of three per cent of GDP."
"In Ireland, the corresponding figures were 25% for the debt ratio and a little less than one per cent for the primary surplus..."
"Yet within two years, their financial systems imploded, their economies crumbled, unemployment soared and both countries were ... forced to seek financial assistance from other European states."
"The lesson of this episode seems to be that there was next to nothing in key indicators of public debt that indicated the imminent catastrophe. The build-up of financial fragility occurred on private sector balance sheets."
(end of excerpt)
DEBT RELATIVE TO GDP IS A DIVERSION. ANYWAY, GDP IS A RESULT -- AN OUTPUT, NOT AN INPUT.
THE PURPOSE OF THE MODERN STATE IS "TO PROMOTE THE GENERAL WELFARE" -- TO IMPROVE THE ECONOMY. GOVERNMENT DEBT IS INSANELY HIGH BECAUSE ECONOMIC POLICY IS WRONG. BUT ECONOMISTS AND POLICYMAKERS DO NOT EVEN KNOW WHAT IS WRONG.
All you have to do is compare NON-GOVERNMENT debt to GOVERNMENT debt to see the problem! NON-GOVERNMENT DEBT ALWAYS RISES UNTIL IT CREATES DISASTER. WE ALLOW THIS TO HAPPEN AGAIN AND AGAIN, BECAUSE WE ALWAYS ASSUME THAT NON-GOVERNMENT DEBT IS NOT A PROBLEM.
Post a Comment