Economic Maverick — Steve Keen, debt debates, and Fixing the REAL Debt

One of the most frustrating aspects of the shallow debate on "debt/deficits" is the complete absence of any mention of PRIVATE sector debt within the accepted frames of debate. This is especially unfortunate because private debt is about triple the size of public debt in the US, and changes in private leverage are a more critical driver of the broader economy. Generally speaking, changes in public debt are primarily a response to the health and activity of the broader economy, whereas changes in private debt drive the broader economy. What's especially sad about this misplaced emphasis on public debt is that it's occurring in the aftermath of the 2008 Financial Crisis, a crisis that was brought on entirely from a credit bust that emanated out of the financial system and driven by over-leverage in the household and banking sectors. Excessive public debt had nothing to do with the bubble, crash, or subsequent economic doldrums. Effectively, the austerity caucus has been able to pull a brilliant "bait and switch" by taking the public's understandable allergy to "debt" and turn it into an exclusive obsession on public debt instead of a focus on private debt or a broader discussion on why our economic growth model is so overly dependent on credit expansion. Most tragically, public policies that obsess with public austerity actuallyhinder the over-indebted private sector's needed desire to net save and fix its own debt problems in a post crash environment. Therefore, the distorted framework of the current debt debate actually exacerbates the economy's REAL debt challenges.

Economic Maverick
Steve Keen, debt debates, and Fixing the REAL Debt