I might have agreed with you 600 billion dollars ago, but the current government has spent more debt than every other government before it combined in a very short period of time. Eventually, you got to put the crack pipe away.
That goes to something I was discussing with someone else today, that they do things that make the numbers always go up, but the numbers in the aggregate don't tell the whole story. They kept the numbers going up for the past 15 years, but what that's looked like is cost of living becoming impossible, factories and the like shutting down, and the economy being people shuffling around million dollar apartments in Toronto.
Keynesian prescriptions are a failure. Debt during bad times and saving during good times does not work. Politically it turns into debt during bad times and debt during good times. If you want proof, look at the years since 2008. More debt run up than ever before, in every economy around the world, during what was called the longest economic recovery in history.
So what really needs to happen is a recession. A bad one. It'll suck, and a lot of people will get hurt for a while, but perpetual economic stimulus is very bad. It means that on paper the numbers only go up, but it also means that people who have only ever see their numbers go up, and people who have nothing end up priced out of ever having anything. Kids are living in their parents basements because they can't afford anywhere to live in the second largest country on the planet with one of the lowest population densities on the planet.
We need our capital going towards productive work, not towards bidding up 100 year old houses or other non-productive rent seeking. If changing that means our numbers go down for a while, so be it. If we don't fix this obvious problem, then political extremism is going to continue to grow because there's no opportunities for anyone who doesn't already have a foot in the door to just lead a normal life. Then the numbers will really drop, and they probably won't recover for a long time.
Keynesian prescriptions are a failure. Debt during bad times and saving during good times does not work. Politically it turns into debt during bad times and debt during good times. If you want proof, look at the years since 2008. More debt run up than ever before, in every economy around the world, during what was called the longest economic recovery in history.
So what really needs to happen is a recession. A bad one. It'll suck, and a lot of people will get hurt for a while, but perpetual economic stimulus is very bad. It means that on paper the numbers only go up, but it also means that people who have only ever see their numbers go up, and people who have nothing end up priced out of ever having anything. Kids are living in their parents basements because they can't afford anywhere to live in the second largest country on the planet with one of the lowest population densities on the planet.
We need our capital going towards productive work, not towards bidding up 100 year old houses or other non-productive rent seeking. If changing that means our numbers go down for a while, so be it. If we don't fix this obvious problem, then political extremism is going to continue to grow because there's no opportunities for anyone who doesn't already have a foot in the door to just lead a normal life. Then the numbers will really drop, and they probably won't recover for a long time.
Debt is a force multiplier. Successes get blown up, and failures also get blown up. That's one reason why most booms and most busts are centered around monetary factors. During the gold standard era, many of those booms and busts centered around bank policies, using silver or gold as coinage, or people playing around in markets to limit or cause excesses of money.
Usually, some stuff will be going up and other stuff will be going down and it all sort of balances out, but with debt you can have massive booms because lots of people with lots of money rush into one slightly profitable thing making it insanely profitable, but when it becomes less profitable suddenly everyone is rushing with their borrowed money to get out and it crashes, and because there's so much borrowed money involved not only does that thing crash, but the people who lose borrowed money need to pull out of other stuff to make up the difference and so it causes other parts of the economy to choke up as well.
Of course I'm not suggesting we end debt, but it's an instrument that must be used carefully, and there's nothing careful about the past 50 years.
Usually, some stuff will be going up and other stuff will be going down and it all sort of balances out, but with debt you can have massive booms because lots of people with lots of money rush into one slightly profitable thing making it insanely profitable, but when it becomes less profitable suddenly everyone is rushing with their borrowed money to get out and it crashes, and because there's so much borrowed money involved not only does that thing crash, but the people who lose borrowed money need to pull out of other stuff to make up the difference and so it causes other parts of the economy to choke up as well.
Of course I'm not suggesting we end debt, but it's an instrument that must be used carefully, and there's nothing careful about the past 50 years.
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Let me tell you exactly what would happen.
Someone with a million dollar mortgage on their million dollar Toronto house would suddenly be debt free, with absolutely no pain, and they would walk into the bank, take out a million dollar loan, and buy a $2 million Toronto house (or maybe a $5 million Toronto house since they have a million dollars in equity in their existing home!), and they would probably believe that the government would come pay off all their debt for them again at some point in the future.
Economics is the study of incentives, and so if you base your macro off of completely ignoring the incentives that you're creating then you're going to make the situation worse. Deleveraging absolutely must come with pain, because that pain is the lesson being taught to the people who took out excess debt. It's the lesson that taking out excess debt will cause you pain, and people learn that in their gut and stay deleveraged unless there's a great reason to lever up. By contrast, if you just pay off everyone's loans, the lesson that you will be teaching those people is that if they rack up massive amounts of death then someone's going to swoop in and save them. It's going to teach them to stay levered.
It's also going to keep the cost of those assets way up. People aren't going to be short on cash, they will not have had any reason to learn that their crappy house in downtown Toronto isn't actually worth $3 million dollars, so prices will just continue to rise. Without the pain, asset prices won't be able to return to sanity, and the bubble will get worse.
And on the topic of incentives, you know who's going to be really badly punished by what you're talking about? Responsible people. People who didn't take out too much debt aren't going to get a giant payday. They're going to end up comparatively speaking behind because instead of racking up irresponsible debts, they only took out loans that they could afford to pay back. They probably didn't go on vacations that they could have, they probably chose to live in a different city, they probably chose to live a much different life with a much different vehicle and different toys.
So how do people deleverage otherwise? A few different ways. For those people living in toronto, they're going to have to sell their house. For people who took out too much debt to possibly pay back, they'll have to go bankrupt. Going bankrupt is going to hurt them in various ways, but it's going to help them in terms of getting out of debt, and it's going to hurt the bank because they're going to have to swallow the consequences of the bankruptcy. In this way, people who have just taken out way too much debt will get relief, and they will also get punished for their excesses, and the people who delivers by either just paying down debts or by selling assets responsibly will not be punished except by the pain of having to do those things. The banks are punished because they will take a hit on many of those loans, and people who at no point had that they couldn't pay off will end up ahead because they didn't have any leverage in the first place.
Someone with a million dollar mortgage on their million dollar Toronto house would suddenly be debt free, with absolutely no pain, and they would walk into the bank, take out a million dollar loan, and buy a $2 million Toronto house (or maybe a $5 million Toronto house since they have a million dollars in equity in their existing home!), and they would probably believe that the government would come pay off all their debt for them again at some point in the future.
Economics is the study of incentives, and so if you base your macro off of completely ignoring the incentives that you're creating then you're going to make the situation worse. Deleveraging absolutely must come with pain, because that pain is the lesson being taught to the people who took out excess debt. It's the lesson that taking out excess debt will cause you pain, and people learn that in their gut and stay deleveraged unless there's a great reason to lever up. By contrast, if you just pay off everyone's loans, the lesson that you will be teaching those people is that if they rack up massive amounts of death then someone's going to swoop in and save them. It's going to teach them to stay levered.
It's also going to keep the cost of those assets way up. People aren't going to be short on cash, they will not have had any reason to learn that their crappy house in downtown Toronto isn't actually worth $3 million dollars, so prices will just continue to rise. Without the pain, asset prices won't be able to return to sanity, and the bubble will get worse.
And on the topic of incentives, you know who's going to be really badly punished by what you're talking about? Responsible people. People who didn't take out too much debt aren't going to get a giant payday. They're going to end up comparatively speaking behind because instead of racking up irresponsible debts, they only took out loans that they could afford to pay back. They probably didn't go on vacations that they could have, they probably chose to live in a different city, they probably chose to live a much different life with a much different vehicle and different toys.
So how do people deleverage otherwise? A few different ways. For those people living in toronto, they're going to have to sell their house. For people who took out too much debt to possibly pay back, they'll have to go bankrupt. Going bankrupt is going to hurt them in various ways, but it's going to help them in terms of getting out of debt, and it's going to hurt the bank because they're going to have to swallow the consequences of the bankruptcy. In this way, people who have just taken out way too much debt will get relief, and they will also get punished for their excesses, and the people who delivers by either just paying down debts or by selling assets responsibly will not be punished except by the pain of having to do those things. The banks are punished because they will take a hit on many of those loans, and people who at no point had that they couldn't pay off will end up ahead because they didn't have any leverage in the first place.