I’m not talking about Italy…

Will see what happens next, but my bet is that economists will have to revise their textbooks and stop focusing on only one quarter of the debt issue sooner than later. May be central bank will start looking at M3 for real and use “alternative” ways of controlling monetary expansion (fractional reserves, more serious regulations for debt product sold to consumers, credit derivatives, etc…).

But public debt has to be paid. Private debt can be written off. Companies go out of business and houses are auctioned off. Most countries have ways for private citizens to get rid of debt.

All of this is bad for the economy, but a sovereign default is worse by far.

For example, in France oil dependance (thus trade deficits) is lower due to state taking public debt for nuclear and public transportation.

But public investments are a small part of public expenditures. Consider how much goes to pensions and health care and how little to public works.
Even public works are not necessarily beneficial. Highway construction with public funding has caused much of today’s dependency on oil.

“And credit card debt don’t seem to be going as advertised here”

I think there is a confusion here Laurent. There is no inconsistency between the link and what I am saying, except on a point of detail. I agree that as people struggle with reduced disposable income as interest rates rise (and this is the only real way to slow the expansion of private debt, but you can hardly blame them in the US if Japan had 0% rates) and their mortgage payments go up, then they normally go to the credit card first.

You should try shopping in a supermarket in Spain these days, as just about everyone in the line is living off their card. So this is the first stage.

But the thing is this hits a wall at some point, that’s the next leg down in the process, when the thing really starts to bite, and instead of trying to maintain their level of spending by using the credit card, they decide its time to make a reduction. That’s when the pain starts to be felt. This data indicates that we may well be there, and that the downturn may well have begun. Consumer confidence reading also tend to confirm this.

Oliver, I’m not questionning the consequence of too much USA debt, but just in the range of potential measures to be taken, public debt is less than a quarter of the problem, and given rate spreads, increasing the public debt to reduce private debt might reduce total debt.

For example, in France oil dependance (thus trade deficits) is lower due to state taking public debt for nuclear and public transportation.

Is it wise to say that the USA should not do so while it’s still possible?

I’d be happy to hear about economists studying the total debt and ways to curb it instead of talking about one quarter of it.

And credit card debt don’t seem to be going as advertised here, see Dean Baker:

http://www.prospect.org/deanbaker/2006/09/consumer_debt_and_the_housing.html#006234

Because the debt is too high. Or, to be precise, in some member states it is going always up, rarely down, not even in times of robust growth.

If the US collapses under its debt, we’ll be in deep shit, as we’ll have just lost a major trade partner.

The debt means that public spending has to be limited, while some spending has to be redirected to child care for demographic reasons. Doing so requires policies furthering economic growth at the expense of the poor, whether we like it or not. We are in trouble of our own making, not in a p*ssing match with the US.

Well a number of reasons I guess. Firstly in Greece and Italy (we are talking about reform in the EU here, so we could leave eg Japan out) the figure is in the 105-110% of GDP region. But even this isn’t really the point. The thing is that if you keep running deficits on an annual basis this will only rise and rise. Especially as the dependent population increases (2010 - 2020 period especially)and as the tax base you draw from reduces. So - as Pébereau pointed out - in the French case it isn’t so much where you are now, as where you are headed.

And its worse, since as Jerome has indicated, France has had comparatively goood growth over the last 5 years, so there was really no excuse for running the deficit. Now we may be about to reach the peak of this cycle, and instead of being able to increase the deficit in order to counterbalance, many EU economies may be doing fiscal tightening as the global economy slows.

“whereas for the USA for example total debt (personal, corporate and state)”

The point is Laurent we are talking about public rather than private since this has to be paid back in the future using taxes (or by cutting spending) and this has undesireable consequences for employment, among other things.

Of course US private debt also has to be paid off, and that was in part my point about the reduction in the rate of accumulating credit card debt in the US. The way private debt has been increasing there may well not be sustainable either. But two wrongs don’t make a right, and this isn’t an international football match.

Obviously the German economy has benefited somewhat from the expansion in private borrowing in the US, directly by selling to US customers, and indirectly by selling to China who pay them with money, in part, earned by selling to the US. France has, in part, benefited from the lift this has given Germany. We are all in the same boat. Simply pointing your finger at the silly thing the other guy is doing really doesn’t get you anywhere.

But the point is, one of the things which has fuelled the level of private indebtedness in the US has been the fact that globalisation now means the Fed has less control over interest rates which are, to some extent, set globally. This was a point I was making earlier. This is why there has been so much pressure on Japan to end ZIRP. We are now about to get to see what happens when they do.

(Not even talking about comparing what you get in form of public infrastructures in return from your public debt)

http://www.oneseat.eu

““Or are you saying that productivity grwoth will not be sufficient for us to afford this.”

Yes, of course I am. This to me is obvious.’

Why?”

Fair question, but hard to answer easily. I gave some of the reasoning before but here is some more.

Firstly ageing as a physiological process. One of the reasons I eased up blogging over the summer was because I hit a problem with the research I am doing - something to do with the traditional evolutionary theory of why we age. There was something in the theory that didn’t seem to me to make sense any more to me in terms of recent work in comparative genomics and molecular biology, and I didn’t know enough basic science to run with my hunch. Now I know a little bit more, and we are about to see if a little knowledge really is a dangerous thing
Anyway over the coming weeks and months I will be posting quite a bit here and at DM about what I have learned, because some of it is really quite surprising.

Now the question needs to be approached on two levels, the physiology of ageing, and the actual in-situ performance of the individual.

The interesting thing about the physiology of ageing is that there is a lot talked about the topic, but we really don’t know too much. I mean this in the sense that we get old on two levels, we get old in terms of calendar ages (every day we are one day older, this is the same for everyone) and we get old in terms of our physiology, there is an ‘ageing process’ going on (and this ageing process differs from one individual to another). Some people “burn the candle at both ends” (especially if they drive themselves with stress) and they, unsurprisingly, age more rapidly. On the other hand some people are able to relax more, take things as they come (have more holidays, work less) and these people more than likely age more slowly, as long as they don’t do nothing, you need a certain sufficient level of stress.

Anyway, you are getting the message, we need to think about how fast we age (at the population level, or if you want jargon at the expressed phenotype level) in relation to how our calendar ages run.

We are all living longer. But is that life-course expanding proportionately as our expectancy rises? A lot of our economic futures depends on this.

Unfortunately things don’t look too good, since it appears that what is happening is that we still age as rapidly as our parents do/did (in the 19th century there was a real jump, but this is another question) - female age at menopause hasn’t moved, for eg, but improved medical care as we age now means we can push the envelope out a bit further. But of course what this means is that ‘our decline is more protracted’ rather than that we can work in highly productive jobs for any greatly increased length of time. It is not surprising in this context that in the UK where people are now increasingly starting to take at least part time work in the 65-70 age group, this is mostly doing things like petrol pump attending or in supermarkets rather than designing new mobile phones.

In Japan where they hit this problem a bit earlier than the rest of us, and where they have managed to keep their most technologically advanced and high value enterprises highly competitive, they put virtually everyone out at 55, no matter what, and then offer a second career doing less skilled work.

One of the great beneficiaries of this has been China, since a lot of redundant Japanese managers and technicians went to help new enterprises in China. Since Chinese technology was obviously way behind the curve, even their dated knowledge was really valuable. So this can offer many a solution on the individual level - going to work on projects in the third world taking skills and expertise with you - but it hardly resolves the problem in our local economies.

So back to the problem. Basically we know that function reduces both physically and mentally after the late 40s, what we really lack are biomarkers for this ageing. Quantifiers of how rapid the process runs. This would make the whole debate a little more ‘objective’ as it were. Basically we have two candidtates for biomarkers (at least) that are near to coming on-line. One involves something called telomere length (let’s not get too technical, but telomeres are strands of DNA at the end of the copy of the genome in each cell of your body, and they are basically there because of technical problems with DNA copying). Now each time a cell replicates itself the telomere length shortens. So this is a kind of measure of ageing, since a given cell can only replicate so many times before it runs out of telomeres and is switched-off as part of a process known cellular senesence.

So the exciting thing is that they have now developed techniques for measuring telomere length. They have shown for example that smoking reduces telomere length by so much per packet/day year. They have also, and unsurprisingly, found huge social disparities in health at this level, with people in certain social classes being estimated to have 6 to 7 years less life expectancy by the age of 50 (on average , of course, and yes, I will post on all this) as indicated by the length of their telomeres. Incidentally, if people in the US work so much longer, then all this work could provide some solid scientific explanation for the life expectancy differential, as well as for ‘French exceptionalism’ in terms of some of the diseases of ageing. Taking life a bit easier is definitely better for health, (red wine also contains resveratol from the grape skins, which is part of this story), and so if you are willing to trade a bit of money for being a bit more healthy, then you can. (There you are Jerome, I’ve handed you an argument you can use ).

As well as telomeres there is the whole question of cellular senesence itself. One very interesting line of work here involves examining muscular tissue as people age, and seeing how many cells have been switched off by the cellular control mechanism. This number increases as we age, and is basically the core of the bodies anti-cancer mechanism.

So, after all that, what I am saying is that once we have some objcetive measures of ageing we will be able to give much better economic foreceasts, since we can literally read the telomeres rather than the tealeaves. We will then have a yardstick just like the proverbial leaden metre in Paris or whatever. In fact David, they will be able to ‘benchmark’ you just as they can the processor in your PC.

I mean obviously the impact of ageing varies from job to job. Central bankers and judges notoriously have long working lives, but let me ask you, if Alan Greenspan had been a brain surgeon, would you have wanted him working on you in his last year of work? At the other end of the scale footballers peak early, although they can obviously follow up with seceond careers related to sport or whatever.

Clearly the highest attritition rate on the productive value of the economy is likely to be among the knowledge workers, and it is really on this band of people that the economic future of a society rests. But even in the case of the lower skilled, it isn’t clear that with the higher ageing rates many of these are likely to experience for lifestyle, nutrition and stress reasons, they will be able to be as active labour market participants in such huge numbers in the higher age groups as some people are assuming.

Basically productivity isn’t such a mystery really, the greater the proportion of people in the 35 to 50 age group you have in your society the more productive you are. France has such high per hour worked productivity precisely because participation rates in this age group are very high, and the years of study internalised before they reach 35 is very high. As I said to Brad earlier, I’m not that convinced that it is so critical whether or not someone of 22 or 23 is working, or repeats a year of study, probably in the long run the latter is a better social outcome.

Well, you asked me why, and there you have (at least some of) it.

Thanks for that comment. I’ll respond in more detail a bit later.