Wednesday, October 9, 2013

Public debt and private wealth

One of my biggest complaints about typical conservative dialog in America is that it is, generally, argued by wealthy people and it, generally, understates the role that the government played in the accumulation of their wealth.  Try asking a conservative this question:
What percentage of your wealth is due to government spending, support, or intervention?
A totally reasonable response would be "how on earth could I possibly know that?"  However the response tends to gravitate towards "What do you mean 'I didn't build that!?'" to borrow a line from the rhetoric in the 2012 election.

Similarly, conservatives are very concerned about the national debt (to the point that we're legitimately risking a default on our debt obligation).  If you tweak the question and instead ask:
What percentage of the national debt should you be responsible for?
The response does not tend to take personal responsibility but instead blames "government bureaucrats", "entitlements," etc.

All of that got me wondering about the relationship between the public debt of America and the private wealth of America.  Consider two graphs:

This one pulled from the wikipedia article on the US national debt.

The second from the wikipedia article on wealth in the United States:

This is obviously an unscientific comparison, and the scales differ by multiple orders of magnitude but it doesn't take a scientist to suggest that the shape of the curves are nearly identical.   I contend that there is a strong hypothesis that there is a correlation between the dramatic increase in private wealth over the past forty years AND the dramatic increase in public debt over the same interval.

That is NOT to say that this trajectory is sustainable, even the most liberal voices on public debt (Paul Krugman ?) agree that we have a problem to address eventually (but now is the wrong time).  It does however give credibility to the question above ("what percentage of the national debt are you responsible for?") and arguably takes it further suggesting that the wealthy should be responsible for more of the debt since they have gained more wealth.

It has always been true that there is no such thing as a unique idea (I'm always stunned how most Nobel prizes are awarded to multiple people who discover amazingly complicated things "at the same time") and in the Information Age it's typically easy to confirm that...

A paper entitled "Public Debt and Private Wealth" by a Candian academic makes this exact argument.  He starts the paper...
The purpose of the present study is to show that, contrary to common belief, prosperity and “democratic wealth” in a capitalist economy depend in a crucial way on a greater government intervention.
and later concludes that
[T]he creation of private wealth and its equal distribution in capitalist societies depend in a crucial way on the implementation of a democratic public policy. In particular, it was shown that public deficits are an important source of wealth for the private sector, which also benefits from the positive effects of low interest rates (with the exception of the rentiers) and a more generous public spending on social programs. 
To be fair the paper feels a little flimsy and some of the macro-economic explanations and formulas are likely open to withering critique (having never formally studied economics myself) but nonetheless I believe it asks the right question.

What portion of your wealth are you willing to contribute to solve our national debt/spending problem?


  1. In this view, rising inequality isn't all bad, because the people who benefit most use their wealth by reinvesting in commerce and the economy to create new jobs, technologies, and opportunities which are available to everyone.guarantor loans