Decoding Brad Delong

He is talking about government debt, he wants more of it I think, and I am trying to decipher his argument.  Here goes:

The Proper Size of the Twenty-First Century Public Debt
When we examine the public finance history of major North Atlantic industrial powers, we find that the last time that the average over a decade of the 10-year government bond rate was higher than the average growth rate of its economy was… 1890. Since then, over any extended time period for major North Atlantic industrial economies, r > g without fail for . That is now 125 years.

Ok, now r > g since 1981, I should not have to put up the graph. But since the crash, r -= g, mostly.  r is the yearly rate on the ten year term bond, g is the real gdp growth. r is mostly higher than nominal GDP growth, but not as much. Did he get a greater than sign backwards?

Only those who see a very large and I believe exaggerated chance of global thermonuclear war or environmental collapse see the North Atlantic economies as dynamically efficient from the standpoint of our past investments in private physical, knowledge, and organizational capital. But the fact that r < g for a century and a quarter with respect to the investments we have made in our governments raises deep and troubling questions.

Hmm, that would be 1890 until today?  Something is not right. Maybe I should put up the graph.

 There we have it, r in blue greater than real GDP growth, in red,  (both YoY). Down below I put up the longer term and his argument makes more sense

Since 1890, a North Atlantic government that borrows more at the margin benefits its current citizens, increases economic growth, and increases the well-being of its bondholders (for they do buy the paper voluntarily): it is win-win-win.
That fact strongly suggests that North Atlantic economies throughout the entire 20th Century suffered from a form of dynamic inefficiency, in that there was excessive accumulation of societal wealth in the form of net government capital—in other words, government debt was too low.

OK, here is the longer term view. And in fact, bond rates have been about 3%. And over much of that period, growth rates have been higher.

And looking at all North American economies we might find that r < g since these European countries got themselves destroyed, and Japan nuked. 
So I get his thesis now.

Given the debt secured by government-held social wealth ought to be a close substitute in investors portfolios with debt secured by private capital formation, it is very difficult to understand how economies can be dynamically efficient with respect to private capital and dynamically inefficient with respect to government-held societal wealth in the absence of truly mammoth financial market failures.

Private investors, in Europe, do not appreciate the value of goverment investments.

These considerations militate strongly for higher public debts in the 21st-century then we saw in the 20th-century. Investors want to hold more government debt: the extraordinary prices at which it has sold since 1890 tell us that. Market economies are supposed to be in the business of producing things that households want whenever that can be done cheaply. Government debt fits the bill, especially now. And looking out the yield curve Government debt looks to fit the bill for the next half-century at least.

OK, he wants to return to the 1890 era. But we are there, we have arrived and g and r almost match. That does not argue for a higher debt level, that argues for what we are doing now, reducing deficits and living in a mild deflation. The entire peak in  rate centered around 1981 was mainly the Nixon Shock. The best investment government can make is to learn how to government in a deflationary environment.