It’s easy to forget that the vast majority of Americans don’t read econ blogs and know almost nothing about economics. From time to time it’s helpful to check in with them to see what they’re thinking.....like this. (Note: over 360,000 hits from the US.)
What would you say to someone who believes this visual demonstration of how US sovereign debt translates into paper conveys an important truth? My approach would be a variant on the classroom game, “What’s the Denominator?” Everything has to be measured in relation to something else. A million dollars is a lot for me but not Bill Gates. If we put $1M in the numerator, what should we put in the denominator in order to make sense of it? Now do this with the government’s debt: we know what goes in the numerator, but what goes in the denominator? How much room does all that denominator paper take up? What have you learned? (When governments and corporations move lots of money around, it’s better not to use paper.)
Why do you think that average Americans are comfortable with fractions? The use of the "denominator game" is therefore quite limited. The _ONLY_ conceivable way out of this trap is an explanation of FIAT money and how taxation and law enforcement are the _ONLY_ things that give the money any value. Both of these value controls are operated by government. Money created in a bank loan process has value because if you don't pay the debt then you could go to jail or have whatever you purchased with the borrowed money confiscated LEGALLY. It is government enforcement of contracts that make banking possible.
ReplyDeleteHello, Peter.
ReplyDelete"What would you say to someone who believes this visual demonstration of how US sovereign debt translates into paper conveys an important truth? My approach would be a variant on the classroom game, 'What’s the Denominator?'"
Do I have this right? Are you looking at the Federal debt and saying "What's the denominator?"??
Try Non-Federal debt as the denominator. Better yet, invert that fraction and use Non-Federal as the numerator and Federal debt as the denominator.
In the history of the Nonfederal-to-Federal debt ratio one can see the 1947-1973 "golden age" of the U.S. economy, and the 1995-2000 "macroeconomic miracle" (as Robert Gordon calls it). One can see troubled times from 1974-1994. And one can see troubled times since 2007.
If you turn not only to FRED but also to the Historical Statistics, you can extend the graph back to 1916 and find the Roaring '20s and the Great Depression in the ratio as well.
Look at my graphs. The only possible conclusion to draw is that *Non-Federal* debt must fall, relative to Federal.
ArtS