Access Restructuring, Not Debt Restructuring

Debt isn't quite the point, when it comes to arguments about economic stagnation. Furthermore, this is true for both publicly and privately held debt. Instead of struggling to get debt levels and structures "right", why not go to the heart of the problem, for which debt is mostly a symptom: basic forms of economic access now claim a disproportionate degree, of what was once discretionary income for many income groups. Sometimes, what appears as though excessive debt is excessive barriers to living a good life, in disguise. And no government can expect to gain sufficient revenue from expanding basic consumption requirements, indefinitely.

In part this post is a response for Scott Sumner, who recently asked, "Does debt slow growth?" Even though debt loads sometimes appear to slow growth, they are hardly the root cause of economic stagnation. Just the same, debt is often approached as though it were the main problem. In a recent Project Syndicate post, Carmen Reinhart notes:

...nearly eight years after the global financial crisis, burdened by high and rising levels of public and private debt, it is baffling that comprehensive restructuring does not figure prominently among the menu of policy options. Indeed, for the global economy, debt restructuring is the proverbial elephant in the room.

While I share Carmen Reinhardt's concern about debt levels, my response takes a different turn, regarding the possible effects of debt on long term growth. It is doubtful that economic access would significantly improve, were debt restructuring to take place. Also, government debt is more burdensome than private debt, in part due to time based services that governments still hope to fund indefinitely from existing revenue. Just the same, government revenue access will likely face more restraints in the near future, than what existed prior to the Great Recession.

Too many knowledge based services - important as they are - don't readily translate into primary (initial) growth capacity because they still rely on preexisting wealth. Hence the private sector needs to openly acknowledge that some government commitments cannot continue, i.e. some private sector "protection" will decline. Asymmetric compensation alone, on the part of those with enough disposable income to pay for knowledge based services such as healthcare, would ultimately mean a radically diminished marketplace for services formation. The knowledge based marketplace which governments have valiantly sought to represent, now needs stronger commitments and greater societal inclusion, from the private sector. Until this occurs, some aspects of ongoing government budget losses would be suffered greatly.

Meanwhile, private debt concerns are overstated - especially given the fact no one should have to rely on loans for living and working needs as the primary economic option. What purpose would be served, to "wait" for already existing debt obligations to "wind down", only for consumers to be faced with the same debt necessities in the future just to gain economic access? These private debt "overloads" need structural remedies, for the lower income levels which could contribute to potential growth and output levels, if given the chance to do so. Government budgets, however, reflect a complicated dynamic in terms of both marketplace fragility and opportunity. Long term, much more is at stake for public debt, than the need to generate broader housing access which could ease private debt.

National governments began to stray from basic responsibilities and functions, as fiat monetary formation became associated with the worldwide wealth of tradable sectors in the twentieth century. More recently, as they assumed greater roles in domestic economic activity, both citizens and the private sector began to rebel at the revenue now associated with daily government operations.

Thus far however, the main political responses are either threats to cut off existing revenue options (the "good riddance" strategy), or to pretend the problem doesn't even exist. Both responses are non starters. This is why it is so important to distinguish between the kinds of knowledge use which are especially needed at local levels, versus the knowledge use and dialogue most helpful for coordination between nations. Public budgets will still need to account for national and international coordination, while private budgets need to assume greater roles in local coordination.

Even though consumers have been called irresponsible, the ultimate responsibility for debt formation is with the governments which agreed (with private interests) to make consumption requirements intractable in the first place. Some would like to see government budgets whittled away by cutting the economic activity that is associated with them. But cutting out the good with the bad, is only an approach that would lead to tremendous economic losses. Through access restructuring, it may become possible to regain much of the lost ground, that has occurred since the Great Recession.