[quote=Eugene][quote=davelj]
As you know, EconProf, GDP=C+I+G+netX. As we’re paying down the mountain of debt we’ve got, C & I must, by mathematical definition, suffer. And eventually G will suffer too. [/quote]
[quote=Eugene]There’s no law that says that debt can’t be paid off without a significant negative impact on GDP.[/quote]
Technically, in a vacuum, this is correct. However, seeing as total debt in this country is running at 360% of GDP – as compared to a long-term average of half that number – then I’m going to bet on some amount of reversion to the mean. Even if we “just” bring debt down to 250% of GDP – and perhaps this is a sustainable level – then we’ve got a LOT of debt to pay down (and charge off) over the next many years. Consequently, given the level of deleveraging that must occur, I’m pretty comfortable saying that in our current situation we cannot pay off the amount of debt necessary without a significant negative impact on GDP. To believe otherwise, someone will have to convince me that the level of debt we have in this country is anywhere in the ballpark of being sustainable.
[quote=Eugene]Secondly, there’s no law that says that our current level of debt is so unsustainable that it must be paid off ASAP. Including latest stimulus borrowing, federal debt is something like 10 months of GDP, if I’m not mistaken. Many foreign countries are far higher than that.[/quote]
I’m not suggesting that the debt has to be paid back ASAP. Quite to the contrary, I’m suggesting that GDP will be crippled for many years even if we pay it down over decades. Further, federal debt alone isn’t really the problem. The problem is the total debt in the U.S. economy – the sum of federal, state, corporate and consumer debt. This is the figure that’s 360% of GDP in aggregate. And if you look at the historical chart you’ll realize that we’re in completely uncharted territory by a fairly wide margin.
[quote=Eugene]Beyond that, we’re back in the usual efficiency game, where 2%/year growth, give or take, can be expected. [/quote]
I think 2% annually over the next decade is a pipe dream. Although I’d love to be proven wrong. I’d be ecstatic with 1%, meanwhile getting debt-to-GDP down to 250% or so.
