The graph of US private debt since 1830 that can be seen from 29.05 is particularly interesting to me, even though I do not know what data sources were used for the pre-1945 period. You can see the graph below.
As an aside, there appears to be a large fall in the level of private debt as a percentage of GDP from about 1915 to about 1919, which is very interesting since this must have preceded the recession of 1920 to 1921.
I spoke to Steve about this. It was some weird dataset that an economist at a private bank (HSBC?) put together. I don't quite remember the details but my impression was that it was moderately trustworthy. I think I have the spreadsheet somewhere.
ReplyDeleteIs it possible for me to get the spreadsheet somehow?
DeleteAnd any info on data sources?
When Europe went to war, there was a great increase in agricultural demand and prices. Times were never again so good on the farm after the war.
ReplyDeleteSo perhaps they were less reliant on debt? And paid back a lot of their debt, contributing to this fall in debt as a % of GDP?
DeleteTry the link in this Keen tweet for the long-term debt data :
ReplyDeletehttps://twitter.com/ProfSteveKeen/status/419301981530750977
Having read a good deal of Post-Keynesian work, I believe build of private debt can be be a major source of recession, and certainly is THE source of big recessions.
ReplyDeleteWe all know about the 20s and 2000s but you make a good point noting the 1915-1919 drop. I never really noticed that dip below but it would line up with Post-Keynes reasoning: that surge of deleveraging may have caused, or made worse, the 1920 downturn.
Also note the late 1830s! Another huge drop in private debt, and that lines up with the late 1830s recession. As L Randall Wray pointed out, our first "Great Depression" and it happens to coincide with a gov surplus, when we wiped out the public debt...
Fascinating stuff
Great point LK! I've seen this chart before, (Steve Keen is the man) but always got focused on the two massive spikes, I never noticed that pre 1920 drop, it would indeed coincide with the following recession.
ReplyDeleteI got beaten to the point by another comment above, but the 1830s is another standout. High level of private debt that suddenly falls, and I remember Professor Wray talking about our "First Great Depression" which was 1839-43. I also notice private debt is flat from then to 1860 a period that had 5 recessions.
Another note: There's another fall from 1860-1865 but I believe the economy grew during that time, and more robustly than was typical for the period, of course the Civil War was going on so gov spending must've buoyed the economy.
It seems Post Keynesians of all sorts (Keen and the UMKC folk) are correct, and we can't keep ignoring the impact of private debt on the economy, and must take a new look at gov spending.
One final note: I would be interested to look into how the economy performed post Civil War. There was higher public debt than private, only other time that happened was post WWII, and that began our glorious period. So I'd be interested to see if the post Civil War period was similar: Low private debt coming off the surge of gov spending and if it produced a robust economy. I guess the difficulty would be the fact a major was mixed in, and the lack of Central Bank made the overall system tedious. Still, very amazing work by Keen and others, thanks for putting so much of it into one cohesive site!
I got distracted by the chart...onto the original point: I was already against QE since I viewed it as basically another bailout for the banks (moving all their toxic assets off the books), a boon for the rich (I can't believe no one has spoken about how the latest spike in inequality is due to the QE fueled stock boom) and of course failed to stimulate the economy...but keeping in mind the impact of private debt it makes things worse.
ReplyDeleteIF people got spending, it would be a bad thing. We need to deleverage so it's quite dangerous to encourage spending. Especially through wealth effect, I'm with Keen it doesn't have much impact but let's say it did: We just had people spending because they felt wealthy even though they didn't really have the $.
The more I get into Post Keynesian thought I feel more enlightened but also more like bashing my head in at how "off" our policy makers are!
Steve Keen has a proposal that would make QE effective: he proposes a "QE for the people", not for the banks:
Deletehttps://www.youtube.com/watch?v=mZVjZdjf-EM