Open Thread July 9, 2023 US Debt
Differences between Japan and the US Debt. Explain how Japan can manage twice the debt/GDP with no problems but the US is headed to a crisis. Or is the issue really about unnecessary deficit spending due to tax breaks skewed to upper income brackets?
Open Thread July 2, 2023 Partisan SCOTUS, Angry Bear, angry bear blog
Explain how Japan can manage twice the debt/GDP with no problems but the US is headed to a crisis….
[ Japan has not managed a high debt/GDP level well. The high debt/GDP ratio of Japan has sharply limited Japanese growth and productivity these last 25 years. Paul Krugman wrote about this, as did Adam Posen. ]
@ltr,
In the case of Japan, weak consumption and reduced demand for exports has slowed GDP growth, but I see no evidence that this is caused by high national debt. Please post your data. Japan’s economy barely grew in Q4, weak consumption raises policy challenge.
https://fred.stlouisfed.org/graph/?g=16T8A
August 4, 2014
Real per capita Gross Domestic Product for Australia, Germany, Japan and United States, 1992-2022
(Percent change)
https://fred.stlouisfed.org/graph/?g=16T8L
August 4, 2014
Real per capita Gross Domestic Product for Australia, Germany, Japan and United States, 1992-2022
(Indexed to 1992)
https://fred.stlouisfed.org/graph/?g=16Tb7
August 4, 2014
Real per capita Gross Domestic Product for China, Japan and Korea, 2000-2022
(Percent change)
https://fred.stlouisfed.org/graph/?g=16Tbj
August 4, 2014
Real per capita Gross Domestic Product for China, Japan and Korea, 2000-2022
(Indexed to 2000)
https://fred.stlouisfed.org/graph/?g=QsgL
November 1, 2014
Total Factor Productivity at Constant National Prices for Australia, Germany, Japan and United States, 1992-2019
(Indexed to 1992)
https://fred.stlouisfed.org/graph/?g=RF37
November 1, 2014
Total Factor Productivity at Constant National Prices for China, Japan and Korea, 2000-2019
(Indexed to 2000)
https://www.imf.org/en/Publications/WEO/weo-database/2022/October/weo-report?c=924,134,534,158,111,&s=GGXWDG_NGDP,&sy=2001&ey=2022&ssm=0&scsm=1&scc=0&ssd=1&ssc=0&sic=0&sort=country&ds=.&br=1
October, 2022
Government gross debt as percent of GDP for China, Germany, India, Japan and United States, 2001-2022
2001
China ( 25)
Germany ( 58)
India ( 79)
Japan ( 145)
United States ( 53)
2022
China ( 77)
Germany ( 71)
India ( 83)
Japan ( 264)
United States ( 122)
@ltr,
Yes. Just as I posted several times already on AB, Japan’s debt/GDP is twice that of the US and yet they don’t have hyperinflation and their economy, while growing very slowly, isn’t crashing. And there isn’t an atom of evidence that their current economic slowdown has anything to do with their debt/GDP ratio.
Did you have a, you know, point?
https://fred.stlouisfed.org/graph/?g=16T9R
August 4, 2014
Real per capita Gross Domestic Product for China and Japan, 2000-2022
(Percent change)
https://fred.stlouisfed.org/graph/?g=16Ta5
August 4, 2014
Real per capita Gross Domestic Product for China and Japan, 2000-2022
(Indexed to 2000)
https://fred.stlouisfed.org/graph/?g=R5AP
November 1, 2014
Total Factor Productivity at Constant National Prices for China and Japan, 2000-2019
(Indexed to 2000)
Did you have a, you know, point?
[ The creepy sarcasm helps me be less stupid; a, thanks:
The point is that the Japanese debt to GDP ratio has sharply limited growth and investment and productivity since 2000. ]
@ltr,
“The point is that the Japanese debt to GDP ratio has sharply limited growth and investment and productivity since 2000. “
Nothing you’ve posted here demonstrates that. Growth and investment and productivity in Japan since 2000 has stalled, yes. National debt/GDP has been high since 2000, yes. But correlation isn’t causation, ltr. You might just as well have pointed to an increase in Japanese bloggers since 2000 as the cause of sharply limited growth and investment and productivity since 2000.
Joel
I agree with you
ltr
I agree with Joel. Moreover, my daughter spent a year in Japan (studying genetics) during one of the periods of stagnation..or maybe it’s still the same period. She said the Japanese did not seem to worry about it. I suspect Japanese culture does not expect “growth” to be as important as our politicians tell us it is.
As for high debt to GDP ratio: this is not scientific, but might be worth thinking about: when you buy a house your debt to yearly income approaches 100%, and if you count prospective interest on that debt, as our debt hysterics do, it approaches 300%. I have no idea what our debt to GDP ratio was right after WW2, but I think it was quite high, and we managed it quite well. You made no case whatsoever that Japan is managing it’s high debt/GDP. also the “study” by Rogoff et all that “found” that countries with high debt grew more slowly was found to be bogus. You can’t just pick a couple of facts out of the air and lay them next to each other with an imaginary connection and claim either that one causes the other, or that it’s a bad thing. well, a lot of people do exactly that, but it isn’t a good thing.
Is the US headed for crisis? For years I’ve read basically not to get too worried. Also, even though I’d bet the $400B student loan forgiveness “price tag” included amounts that might never actually get paid back, isn’t that the kind of program to avoid if you are anticipating a debt crisis?
@Eric,
My track record in prophecy is mixed. I doubt yours is much better. But when should we start to worry? Well, the dollar is still the world’s reserve currency. People are still buying US Treasuries. Inflation is subsiding. When those things start to change significantly, worry would be in order. Right now, I’m not worried. YMMV.
As for loan forgiveness, what happens to the money that is forgiven? The borrowers, most of whom are middle class or working class will spend it. That will create jobs and grow the GDP, the denominator in the debt/GDP.
Joel:
Both points are correct. I can not prophesize either. I do know the burdening millions of people with an ever-growing debt of interest upon interest, fees, penalties, etc. through capitalization is a drag on the economy. Much of the increases in student loan debt is the result of capitalization. People paying are finding their loans are outstripping their payments in increases.
No other commercial or private loans exists of such magnitude, type, or duration. The most recent PPP loans were forgiven for businesses and politicians with businesses. Small businesses were awarded $800 billion of which ~ $757 billion was forgiven.
Recipients are two dozen members of Congress who received between $79,000 and $3.4 million apiece for businesses, according to reporting at the time.
“Conservative politicians have condemned President Joe Biden’s plan to cancel certain student debt. U.S. Rep. Vern Buchanan, R-Fla., said it would be unfair to people who didn’t take on loan or who already paid theirs off. U.S. Rep. Markwayne Mullin, R-Okla., said the relief shouldn’t be footed by farmers, ranchers and teachers. And the House Judiciary GOP tweeted, ‘If you take out a loan, you pay it back. Period.'”
If you relieve them of a debt for which no one else has the stipulation recorded into their loans, they will become more productive. States and the nation will reap the benefit.
@run,
“And the House Judiciary GOP tweeted, ‘If you take out a loan, you pay it back. Period.'”
In real life, if you take out a loan, it can be discharged through bankruptcy. Education loans are the sole exception. Whoever tweeted that line is ignorant.
Joel:
Very true. This has been my point for over a decade and that of the million-member Student Loan Justice Org. and Alan Collinge.
Joel:
You can say the last two sentences over and over again and it will be ignored.
Eric
Joel and Run are correct. Fogiveness of bad loans through bankruptcy is a feature that makes modern economies work bettr than economies that plunge large parts of their populations into debt slavery. old cal coolidge said “they hired the money, didn’t they” and guaranteed a Hitler would arise in Germany.
paying your debts is a good thing. usury is a crime.
The notion around prohibiting bankruptcy for student debt seems to be that with ‘property-based’ debt, assets can be seized and sold, but this is not so for an education.
It may be that the education obtained is worthless, but many of us have experienced that and still done okay.
Personally, if it helps, I support the idea that people with student loans should be allowed to declare bankruptcy if necessary. The situation seems quite outrageous.
I have a good friend with a PhD in Physical Chemistry who spent many years, mostly as a consultant, doing information systems work. I asked her about how the Chemistry PhD helped her career and was told ‘It’s a credential.’
I have only a BS in Physics, but from RPI, which is a tough school to get through. Motto: ‘Knowledge & Thoroughness.’ I picked up some IS skills in night school after. MY RPI degree got me my first & only IS job which lasted almost twenty years; it impressed my first hiring manager.
Can Joe Biden make it ‘Morning in America’ again? Reagan’s ‘84 campaign offers a potential blueprint for reelection.
Boston Globe – July 9
Midway through the third year of his first term as president, things were not looking good for Ronald Reagan.
His approval rating was consistently anemic as the nation struggled with high inflation. Voters gave him especially poor marks for his handling of the economy. And as he began his reelection campaign, people were openly questioning if he was too old for the job.
But four decades ago, Reagan went on to win a second term by running on a theme of economic renewal that his campaign famously branded as “Morning in America.” Now, noting the similarities to President Biden’s situation, some political experts said Reagan’s legendary turnaround offers a potential template for victory for the Democrat in 2024.
“The parallels are so striking,” said Allison Prasch, an assistant professor at the University of Wisconsin, Madison, who focuses on US presidential rhetoric and made the connection in a recent Newsweek opinion article. “Yes, they’re removed by 40 years and, yes, there are different issues that we are facing, but Biden has the ability to do it if he follows the Reagan script.” …
@Fred,
Just as long as Joe doesn’t follow St. Ronnie’s Alzheimers script.
There is no actual data based evidence of the US heading to a crisis. Mainstream economists and policy makers and politicians have been “warning” us about the imminent debt crisis for 80+ years now. Yet the US is still the largest and wealthiest economy in the world and the US dollar is the most in demand currency in the world. Why is this so?
Firstly, both Japan and US have something in common: both issue their debt(government debt) denominated only in their own currency Both do not promise convertibility of their debt. Both let their currency float and do not peg their currency to another currency or another commodity. Since both Japan & US issue debt denominated in their own currency, it follows that in order to acquire these nation’s debt, one must accumulate their respective currencies first. This leads us to conclude that:
Spending is the prior act in a fiat monetary system; taxing and borrowing are following acts.
In effect, these government are only taxing what it has already spent, and are only borrowing back what they had already spent.
Thus, these debts are nothing like the conventional debt.
Yes, it’s called the national debt, which is just another name for US Treasury Securities, but US Treasury securities are nothing more than savings accounts at the Federal Reserve Bank.
The National Debt IS the world’s US dollar savings – to the penny! Same applies to Japan.
Again, deficit spending aren’t unnecessary. It’s the exact opposite, deficit spending is what allows the private sector to accumulate US dollars. This doesn’t mean deficits do not matter. They absolutely do matter – in the US today, deficit spending is mostly benefiting the top 10%, who then accumulate US dollars, which they invest in risk-free US Treasuries, thus increasing our national debt. What we need is deficit spending that’s primarily directed towards the bottom 80% of Americans, so that they can accumulate US dollars, instead of living paycheck to paycheck or dependent on household debt to maintain their standard of living.
And finally, yes the rich and wealthy should be taxed heavily, not because the government needs their money, but to reduce the wealth inequality.
The goal of the government shouldn’t be to balance a budget or reduce deficits or debt. Their goal should be to balance the economy. Take care of the economy by reducing unemployment and improving the living standards of the majority and the deficits and debt takes care of itself. As we see now with Biden’s policies. Republicans know this that’s why they want to distract everyone with the debt crisis phobia.
@Nathan,
Well-articulated, lucid post. Thanks!
Nathan:
Along with Joel. Thank you for your commentary and striking a similar message to our readers. And yes, that deficit could have been used for more fruitful projects other than lining the pockets of the upper 5% of the taxpayers.
Nathan
yea!
People who have a lot of money tend to be lenders. Lenders do not like inflation, and they don’t like it when someone who owes them money does not pay them back. Because they have a lot of money they tend to be influential in the councils of government.
That’s why there is always someone in government shouting about debt, and economists and pundits who make it their business (literally) to agree with them.
I won’t go so far as to say we don’t need to worry about debt, but we do need to be a little smarter about it.
Nathan,
there would have been a severe debt crisis in the usa from summer 2020 to spring 2022 and spring 2023 had the federal reserve not bought up alot of federal and mbs debt, so the prediction of debt crisis in the short term depends on policy.
the years since the great fin crisis have seen national bank collusion to fine tune…
that observed the impact of other nations’ saving into US dollar debt is reduced
I don’t follow prc holding, but last impression prc is not building up its usa bond portfolio.
your debt crisis predictor is in monetary terms fed policy.
they are getting ~2% growth, but inflation is sticky around 4%.
my feel is inflation is as hard on groceries and rent as on high rolling dollar holders domestic and foreign.
paddy
that’s my feeling to0. but i don’t think i heard any one here arguing that debt or inflation were good…just manageable, or at least only that Japan seemed to be managing its debt without too mch trouble, and that debt and slow growth were not shown to be causally related. i’m pretty agnostic except that i think (know, in some cases) that the debt hysterics are liars. i think even you just showed that we can manage debt and inflation even if you don’t like the way we do it.
meanwhile, i think i heard that Japanese people like to keep their savings in govt bonds even at very low interest. so the Japanese may owe the debt to themselves. this may be quite understandable if you are not greedy for growth.
Nathan did a great job with his explanation of a fiat money system. Taking it one step further, the private sector can be divided into the domestic sector and foreign sector. So the government debt (financial wealth) accumulated by the foreign sector via the trade deficit subtracts from the financial wealth in treasury securities of the domestic sector.
The question becomes what effect does the amount of financial wealth in treasury securities the domestic sector holds has on the economy? One would think if the amount was too low, households and businesses would cut back spending (consumption and investment) and investors would become more risk averse. Under such scenario the economy would suffer. Looking at the historical data, the debt to GDP ratio hit a 100 year low point in 1929; the same year the stock market crashed. It remained low throughout the 1930s depression. The ratio was also low during the 1970s, another period of weak economic performance with high unemployment, high inflation, and a flat stock market.
Starting in 1980, the US began running a significant trade deficit and the SS trust fund accumulating large surpluses. After the Clinton surpluses of the late 1990s, the domestic share of the debt to GDP ratio reached another low point. The 2000-2010 period saw two recessions, mortgage and banking crises, and a flat stock market.
Low debt to GDP ratios appear to contribute to bad economic conditions. As for high ratios, the empirical data is less clear. The ratio reached high levels during WWII and the Covid pandemic. Both were followed by periods of high inflation but that may have been caused by supply issues experienced during both periods. And has mentioned, Japan has a very high ratio. Economic growth in the US was very good after WWII. So I don’t know what to conclude about high ratios, but I don’t think they result in the economic disaster that politicians predict to instill fear.
No, ‘Socialism’ Isn’t Making Americans Lazy
NY Times – Paul Krugman – July 10
Bernie Marcus, a co-founder of Home Depot, had some negative things to say about his fellow Americans in an interview last December. “Socialism,” he opined, has destroyed the work ethic: “Nobody works. Nobody gives a damn. ‘Just give it to me. Send me money. I don’t want to work — I’m too lazy, I’m too fat, I’m too stupid.’”
You’re naïve if you think his take is exceptional. Without question, rich men are constantly saying similar things at country clubs across America. More important, conservative politicians are obsessed with the idea that government aid is making Americans lazy, which is why they keep trying to impose work requirements on programs such as Medicaid and food stamps despite overwhelming evidence that such requirements don’t promote work — but do create red-tape barriers that deny help to people who really need it.
I’m not under the delusion that facts will change such people’s minds. But everyone else should know that over the past year we have, in effect, conducted a huge test of the proposition that Americans have become lazy. And it turns out that they haven’t.
Given the opportunities created by a full-employment economy — arguably the first truly full-employment economy we’ve had in almost a quarter century — Americans are, in fact, willing to work. Indeed, they’re more willing to work than almost anyone, even optimists, had imagined. And the robustness of the American work ethic has huge implications for policy. …
Before I get into the numbers, a reminder about demography. America has an aging population, which means that other things being equal, we should be seeing a downward trend in the fraction of adults still working. Indeed, the overall labor force participation rate — the percentage of adults either working or actively seeking work — is somewhat lower now than it was on the eve of the Covid-19 pandemic.
But such a decline was both predictable and predicted, for example, in prepandemic projections from the Congressional Budget Office. And today’s labor force participation is actually higher than the budget office expected — which is truly remarkable given that Covid did push some workers into early retirement, while long Covid may have left a significant number of workers with persistent disabilities.
One way to look past demographic changes is to focus on labor force participation by Americans in their prime working years, which is higher now than it has been for 20 years. Bobby Kogan of the Center for American Progress reports that if you adjust for age and sex, overall U.S. employment is now at its highest level in history — again, despite the lingering effects of the pandemic.
So much, then, for claims that Big Government has made Americans lazy, or even talk of a Great Resignation. Americans are working more than ever.
Where are these additional workers coming from? One answer is that in a tight labor market, employers are more willing to look at marginalized groups, many of whose members turn out to be perfectly capable of productive employment. We have, for example, seen a stunning rise in employment among Americans with disabilities.
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We’ve also seen a surge in foreign-born workers. Whatever the likes of Ron DeSantis may think, immigrants are a big plus for the U.S. economy: They tend to be both working-age and highly motivated. Indeed, DeSantis’s anti-immigrant policies are already having a visible adverse effect on the Florida economy.
So what does America’s extraordinary success at getting people back to work tell us, aside from the fact that no, we haven’t become lazy? One thing it tells us is that the sluggish recovery that followed the 2008 financial crisis — sluggish largely because Very Serious People were obsessed with debt rather than jobs — denied employment to millions of Americans who could and should have been working.
And recent job gains also make Bidenomics look a lot better than it did a year ago.
President Biden began his term with a large spending package that many have said caused the economy to overheat, feeding inflation. There’s probably considerable truth to that claim. But there were also claims that getting rid of the excess inflation would require years of high unemployment. As it turns out, however, inflation — including measures that try to strip out temporary factors — has been subsiding despite high employment. So such claims are looking ever less persuasive.
And while the hot economy may have temporarily boosted inflation, it also put Americans to work — not just those who lost jobs during the pandemic and its aftermath but also some who previously were unable to get a foot in the door. (It also produced especially big gains for low-paid workers.) If we manage to avoid a severe recession, many of these job gains will probably persist.
The larger point is that despite what grumpy rich men may say, Americans haven’t become lazy. On the contrary, they’re willing, even eager, to take jobs if they’re available. And while economic policy in recent years has been far from perfect, one thing it did do — to the nation’s great benefit — was give work a chance.
(The rest of PK’s op-ed has a lot of links, and won’t post immediately, if ever.)