Reducing Debt-to-GDP

The reason the debt-to-GDP coefficiency is so difficult is because it is loaded with political risk.

By following the risk assessment discussion on this web site, we understand that the political risk tends to be undervalued if not ignored. Economic models, then, are loaded with unaccounted for risk--errors that confound the risk assessment, falsely valuing debt and productivity, liabilities and assets. Even more confounding, we learn, is that the false valuations not only provide beta value to the risk, but are politically motivated. This means that "the risk" is much more than the simple coefficiency of debt-to-GDP.

The massive debt we have, both public and private, is a liability, conservatives argue, if the wealthy have to pay it. It will consume the wealth of the nation. That is, it will reduce GDP.

Never mind that this wealth has been accumulated at the expense of productivity--low GDP (which increases unemployment and debt). This means that the accumulation is an economic liability falsely (politically) valued as an asset.

If we politically confuse assets and liabilities, public policy is perpetually confounded, condemned to political dysfunction, like we have now (with the accumulated value--a general liability--conserved as the general welfare).

With one-in-four American children living in poverty, it is difficult to argue what we have now is the general welfare, but conservatives argue that if we do not cut programs that benefit the poor (reduce debt-to-GDP), the poor will never be anything but poor.

Could it be that a distribution needs to occur from the accumulation to reduce poverty?

Yes, indeed! Distribution from the accumulation--not borrowing it--will reduce poverty. It will turn a liability into an asset. It will turn wealth into capital--it will reduce debt-to-GDP.

Since reducing debt-to-GDP means reducing the load of political risk, and convincing conservatives that narrow accumulation of wealth is a liability and not an asset has a probability of about zero, the prospect for "change we really need" does not look good.

If reducing debt-to-GDP is difficult because it is loaded with political risk, then it is necessary to demonstrate that turning wealth into capital (the paradox of thrift) is an asset and not a liability. It not only reduces the risk (the probability) of poverty, but reduces (coefficiently) the political risk of accumulating wealth that otherwise goes unaccounted for in a catastrophic proportion that will do anything but conserve it.