Private Debt and Public Debility

Abstract

The authors argue that economic growth has been far too dependent on rising debt over the last few decades. Once it was housing debt, now it is consumer and student debt. The solution is fiscal growth policies, including public investment, and a version of debt forgiveness. We will not get rapid growth again with such a debt overload, which also increases the possibilities of another debt crash and accompanying economic deflation.

ACKNOWLEDGMENTS

The authors thank Jeff Madrick, Sherle Schwenninger, Richard Vague, and participants at conferences held by the Center for the Study of Private Debt, the Century Foundation, and the Federal Reserve Bank of St. Louis, at which earlier drafts of this article were presented.

Notes

See Daniel Alpert, Robert Hockett, and Nouriel Roubini, The Way Forward (New America, 2011), https://www.newamerica.org/economic-growth/policy-papers/the-way-forward/. Also Daniel Alpert, The Age of Oversupply (New York: Portfolio, 2013); and Robert Hockett and Richard Vague, Debt, Deflation, and Debacle (2013), https://www.interdependence.org/wp-content/uploads/2013/04/Debt-Deflation-and-Debacle-RV-and-RH1.pdf.

See sources just cited. The locus classicus is Irving Fisher, Booms and Depressions (New York: Adelphi, 1932).

See Alpert et al., The Way Forward, and Alpert, Age of Oversupply.

Alpert et al., The Way Forward.

See, e.g., Joe Nocera, “This Time Really Is Different,” New York Times, October 11, 2011, http://www.nytimes.com/2011/10/11/opinion/this-time-it-really-is-different.html?_r=0.

It is now a commonplace that the Fed of the 1930s, still in the process of learning its proper mandate, failed adequately to counteract post-1929 monetary contraction, while a premature tightening of fiscal policy on the part of Congress in 1937 had the same effect. See, e.g., Milton Friedman and Anna Schwartz, A Monetary History of the United States (1962).

See, e.g., Robert Hockett, “China Is Headed for a Debt Meltdown Like That in the U.S. in 2008—Only Worse,” Huffington Post, January 6, 2016, http://www.huffingtonpost.com/robert-hockett-/china-debt-meltdown-_b_8940382.html.

Ibid.; Alpert et al., The Way Forward; and Steve Keen, “The Seven Countries Most Vulnerable to a Debt Crisis,” Forbes, March 27, 2016, http://www.forbes.com/sites/stevekeen/2016/03/27/the-seven-countries-most-vulnerable-to-a-debt-crisis/#389e4b394edc.

See, e.g., Hockett and Vague, Debt, Deflation, and Debacle.

Ibid.

Ibid.

See, e.g., Student Debt Clock website, http://www.collegedebt.com. Also Figure 3.

Ibid.

As we observe below, there is some evidence that some borrowing has been for needs other than school-related needs.

Ibid.

Ibid.

Ibid.

Ibid. See note 14, on the “insofar” qualifier.

Ibid.

Ibid.

See, e.g., Robert Farrington, “Parents: Stop Taking Out Loans for Your Child’s Education,” Forbes, July 14, 2014, http://www.forbes.com/sites/robertfarrington/2014/07/14/parents-stop-taking-out-loans-for-your-childs-college-education/#1d5fd96755b1.

Per Chapter 13’s “primary residence” exclusion from “cramdown.” See 11 USC Sec. 1322(b)(2). Retrieved from https://www.law.cornell.edu/uscode/text/11/1322.

Farrington, “Parents.”.

See, e.g., Ryan Gorman, “How Student Debt Is Dragging Down the Economy,” Business Insider, May 1, 2015, http://www.businessinsider.com/3-charts-explain-the-effect-of-student-loans-on-the-economy-2015-5. Also American Student Assistance, Life Delayed: The Impact of Student Debt on the Daily Lives of Young Americans, 2013, http://www.asa.org/site/assets/files/3793/life_delayed.pdf.

Ibid.; Alpert et al., The Way Forward; Alpert, Age of Oversupply; Hockett and Vague, Debt, Deflation, and Debacle.

Gorman, “Student Debt Dragging Down Economy; American Student Assistance, Life Delayed.

Ibid.

See Credit Union National Association, Research Roundup, “Strong Growth in Subprime Credit,” November 12, 2014, http://www.cuna.org/Research-And-Strategy/The-Research-Roundup/The-Research-Roundup/Strong-Growth-in-Subprime-Credit/.

See Bankrate.com, “Current Credit Card Interest Rates,” August 11, 2016, http://www.bankrate.com/finance/credit-cards/current-interest-rates.aspx.

See Nathaniel Popper, “How Millennials Became Spooked by Credit Cards,” New York Times, August 14, 2016, http://www.nytimes.com/2016/08/15/business/dealbook/why-millennials-are-in-no-hurry-to-take-on-debt.html.

See Tina Wadwha, “Subprime Credit Card Lending Is Making a Big Comeback,” Business Insider, August 17, 2016, http://www.businessinsider.com/transunion-report-on-increase-in-lending-to-americas-subprime-borrowers-2016-8.

Ibid.

Ibid.

See FRBNY, “Just Released: Recent Developments in Consumer Credit Card Borrowing,” Liberty Street Economics, August 9, 2016, http://libertystreeteconomics.newyorkfed.org/2016/08/just-released-recent-developments-in-consumer-credit-card-borrowing.html#.V7TXAFsrJaT.

Ibid.

Ibid.

Alpert et al. The Way Forward.

Alpert et al., The Way Forward; Alpert, Age of Oversupply; Hockett and Vague, Debt, Deflation, and Debacle; Fisher, Booms and Depressions.

Alpert et al., The Way Forward; Alpert, Age of Oversupply; Hockett and Vague, Debt, Deflation, and Debacle.

Ibid.; Fisher, Booms and Depressions.

Alpert et al., The Way Forward; Alpert, Age of Oversupply; Hockett and Vague, Debt, Deflation, and Debacle.

Ibid.

See generally Robert Hockett, “Recursive Collective Action Problems: The Structure of Procyclicality in Financial and Monetary Markets, Macroeconomies and Formally Similar Contexts,” Journal of Financial Perspectives 3, no. 2 (2015): 113–128 (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2239849).

See American Society of Civil Engineers, 2013 Infrastructure Report Card, http://www.infrastructurereportcard.org/. Note that the numbers have only grown worse since we cited to the ASCE in 2011; see Alpert et al., The Way Forward.

Additional information

Notes on contributors

Daniel Alpert

Daniel Alpert is founding managing partner of Westwood Capital, LLC, Senior Fellow of the Clark Program on the Regulation of Financial Institutions and Markets at Cornell Law School, and Fellow at the Century Foundation.

Robert Hockett

Robert Hockett is Edward Cornell Professor of Law at Cornell Law School, senior consultant at Westwood Capital, LLC, and Fellow at the Century Foundation.