Sunday, November 17, 2013

Federal debt service as a percent of tax revenue

Does Debt Matter? 


 Here we have federal interest payments as a percent of tax revenue, the blue line. It is plotted against year to year growth of real GDP. Notice that interest payments, relative to tax income shot up, much faster, when Reagan cam into office. Notice the accelerator effect? A bit of growth causes that ratio to jump. This Congress no longer has the flexibility to suffer a large interest expense. Clinton policies recovered some debt control, but we have since then lost control.

Here is my point about the Galbraith model.  Congress can no longer suffer such relatively high interest expenses, when it tries to do; it causes the economy to contract. So, the standard circular model Galbraith wants working, isn't. 

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