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“Have you heard the news? Presidential candidate Elizabeth Warren has a plan. No, not that plan, nor that one, but another plan: this one. She says the U.S. is on the verge of a terrible recession, one which she has a plan to beat. So far so normal for a politician on the stump, sans moi le deluge — without me, the end of the world. There is a slight problem here though, a problem with her plan: Any plan to improve the country has to start from where we are, from some sort of base in our actual and extant reality. Warren’s plan is not based in reality.
For example, we are told that household debt in the U.S. is even higher than it was in 2008, just before that last flood. This means that we’ve got to forgive those student debts, really get a grip on auto loans, and force wages up, according to Warren. It is true that debt is higher, the Federal Reserve tells us so. It’s $13.5 trillion now, up from $12.7 trillion. Horrors!
First we’ve got to introduce the Wise Solon to the concept of “inflation.” These are nominal numbers, not real — the economists’ jargon for before adjusting for inflation and afterwards. Plug that 2008 number into an inflation adjustment and we get about $14.8 trillion. Debt levels are below where they were.
But that’s not enough of course. Debt is worrisome only as a portion of income, not as a number in itself. Owing $1,000 when you’re on $5,000 a month isn’t a problem, owing the same sum when you’re earning minimum wage could well be. By definition, all GDP is an income to someone and GDP has risen from $14.8 trillion to $20.8 trillion over the last 11 years (nominal!). That means that debt as a percentage of our collective income has fallen to 65% of GDP, well below that peak of 85% and more.”
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