Timsup2nothin said:
1977, ~250 billion.
1987, ~750 billion.
Tripled in less the time, and followed 1967-1977 where it also came close to tripling.
I would say that both of these are consistent with a theory assigning causality to decreasing share of national income going to workers. The level of consumer debt follows a fairly steady trend until the end of the sixties when it starts to accelerate much faster.
However, keep in mind I'm not saying that
any increase in consumer debt must be caused by a declining share of worker national income- I'm just saying that the increases in the '20s and after the '60s can be explained that way.
Timsup2nothin said:
The surge in the nineties and current century coincides with the successful marketing of "borrow your equity" home refinancing. Does that mean "this is the cause, you are just wrong"? No. It means that this causal link is a lot to hang the economic model on, so hang with caution.
The surge in the 2000s was due to fraudulent loan origination as part of the mortgage fraud epidemic that caused the recession. That's little more than a truism though, as I think saying previous expansions were due to the invention of new forms of credit. Why were new forms of credit invented just then? Why did they come into widespread use? Those are more important questions.
Historically speaking the accumulation of too much private debt is what "causes" a financial crisis. This is where Minsky's explanation of the financial system comes in: his classic line is "stability is destabilizing," which speaks to the idea that a period of prosperity leads people to make riskier and riskier investments. He identifies three basic types of borrowers: hedge borrowers (safe investments like government bonds), speculative borrowers, and ponzi borrowers. Ponzi borrowers are borrowers who are only able to service their debts when the value of the assets they have positions in keeps rising: a fall or even a halt in the rise of value will render them insolvent. I think you can already see the relevance of that to pretty much every economic crisis in the past two centuries.
Timsup2nothin said:
Which brings me to the singular and plurals of models. I like Einstein. THE model is accurate, in all facets. I have not the first claim on having access to such a model. There are plenty of modeling techniques built on varying theories, and all of them are useful, though partial. We (modern economists) look at the free market capitalism model constructed by Keynes and say "well, that's obvious but the ground has shifted out from under it" without acknowledging the brilliance of it, because it was very nearly complete. The shifting of the ground out from under it is a result of it.
That's the difference between the social sciences and the hard sciences. A physicist comes up with a model of objective reality. There may come a better model that makes it obsolete, but the objective reality being modeled isn't (at least theoretically) going to change. But models in the social sciences are created expressly for the purpose of making themselves obsolete through alteration of that reality.
We are in a period where we really need the next Keynes. Someone who can synthesize all the current models of facets into something approaching the model of the economy that we are currently stuck with. We need that model because the economy is creaking, badly, and if we don't find a way to dismantle it in some controlled fashion the transition to whatever supplants it is likely to be extremely messy.
So I'm not completely sure what you mean by "the free market model constructed by Keynes." The "Keynesian" model that's currently dominant, AFAIK, is IS-LM which wasn't constructed by Keynes but by other (neoclassical) economists. Keynes' General Theory was meant to explain any capitalist economy, from the classical 19th century one based on the gold standard to the managed economies that emerged in the '30s in response to the Depression (that's why it's called the
General Theory).
For myself, I favor post-Keynesian approaches, as I think those have the best predictive utility. Models of the economy based on perfect competition, universal access to correct information and so forth are clearly not only wrong, they're predictive failures.
I don't think it's possible to construct a mathematical model of the entire economy even in principle. But you can model the (causally) important parts. The trick is figuring out what those are, and I think the post-Keynesians are correct that the immediately important thing for understand how the business cycle works is debt - while it seems clear that Marx is far closer to the underlying causes of economic events than any 'bourgeois' economist.
Interestingly, on the point of Keynesian theory changing the social reality, you should read Kalecki's essay
Political Aspects of Full Employment. Kalecki predicted that even though Keynesian management would result in higher profits for business, full employment would lead to the working class becoming more socially assertive and erode the social primacy of employers, and so predicted that the Keynesian policy apparatus would not last.
I think he's been more or less vindicated by events. Keynesian demand management fell out of favor for monetarist approaches at the beginning of the '70s.
