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Greg Wellman
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The continuing adventures of worst case scenario man
The continuing adventures of worst case scenario man

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Bad economic thinking or bad communication of economic ideas? Intentional or not?

Consider this article
http://www.independent.ie/business/world/investors-told-sell-everything-in-dire-financial-warning-34359747.html

The generally bad economic state described may or may not come to pass. I'd hardly be surprised by some measure of a downturn, although nothing as severe as RBS is predicting here. But one line stood out to me ...

> And it said the world has far too much debt to be able to grow.

My first thought was "to whom?" Like, the bank of Mars is going to foreclose on the Moon? Seriously, either this statement is nonsense, or it is a terrible obfuscation of a real idea. I argue it's the latter.

Obviously, every bit of debt in the world is owed to someone else in the world. The total amount is not the problem - the distribution is the problem. If people who would spend are in debt to people who are sitting on cash, then the velocity of money goes down and you get a recession. Redistributionary policies tend to increase the velocity of money, but aren't popular with people sitting on cash. So a bank won't come out and say "extreme inequality is bad for growth". Instead they say "too much debt is bad for growth". One framing suggests action (stimulus, redistribution) that would be helpful. The other framing promotes austerity, which only deepens the contraction.

The really interesting question is whether the person who wrote "the world has far too much debt to be able to grow" even understands that they are using language that obfuscates rather than clarifies the problem. The likely alternative is that they use that framing because everyone else in their line of work says it the same way.

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