tag:blogger.com,1999:blog-2163807821345737920.post6206394297332537509..comments2022-11-14T03:04:56.308-06:00Comments on Reformed Trader: Great Reads: Leadership LinksUnknownnoreply@blogger.comBlogger1125tag:blogger.com,1999:blog-2163807821345737920.post-86793875869770718062011-08-14T00:58:08.742-05:002011-08-14T00:58:08.742-05:00"The world economy is overleveraged: too much..."The world economy is overleveraged: too much debt." I don't think I get Aleph blog. Debt is one of those things that has some funny properties at the aggregate level; namely, that the net level of debt (total borrowed - total lent) in the world economy is always zero. By definition, the world economy can't be overleveraged.<br /><br />The blog seems to be talking a bit along the lines that total activity in the credit market (total borrowed + total lent), which was a pretty common argument around the timing of WWI and one of the things that prevented a resurgence of world finance and globalization until the 1970s. I'm not saying it's wrong--there may be a strong case for a 'goldilocks' level of aggregate finance--but the author doesn't seem to want to go that direction, instead focusing on the imprudence of the debtors (as if China is the main creditor in this situation). You could also make a wealth distribution argument, but he doesn't really go that direction either.<br /><br />The author seems to completely miss the Keynesian arguments about (1) shifting debt burdens from some constituents to others, and (2) using government credit to smooth debt burdens and consumption across time. Again, you could make the argument that in most countries this isn't what's happening in practice, but he doesn't even seem to notice that this is a logical possibility. Usually this kind of thinking is due to an inability to think in disaggregated terms, but I don't know if that's true of Merkel.<br /><br />Also, the sentence "In general, the more of the economy that we hand off to the government, economic growth will be less" is pretty controversial. I know a thing or two about economic growth, and the evidence regarding government size hurting growth is tentative at best. Again, there's some evidence for a 'goldilocks' condition here, but the data doesn't give a robust answer one way or the other.<br /><br />I guess I really don't see what the author is trying to do here.Normanhttps://www.blogger.com/profile/12866136113454261245noreply@blogger.com