An additional dollar of debt no longer buys an additional unit of economic growth. In fact, because debt service is now so large, an additional dollar of debt actually retards economic growth. From David Stockman at brownstone.org:
There is a large caliber smoking gun. The BEA series for real personal income less transfer payments is a pretty serviceable proxy for private market output before the impact of Washington stimmies and distortions caused by transfer payments and government borrowing. After all, earned income – wages, salaries, bonuses, profits, interest and dividends – is the payment to factors of production for output and therefore its reciprocal.
The long-term trend is slouching definitively southward. Since the pre-lockdown peak in February 2020, in fact, the growth rate has slowed to just 17 percent 0f its pre-2000 average.
Per Annum Growth of Real Personal Income Less Transfer Payments:
- Feb. 1960 to Feb 2000: +3.62 percent;
- Feb. 2000 to Feb. 2020: +2.08 percent;
- Feb. 2020 to May 2023: +0.61 percent.
It doesn’t take a lot of cogitation to explain this dismal trend. The US economy is freighted down with debt and it is also short of labor, riddled with non-productive speculation and financial engineering and starved for productive investment. Taken together, those malign forces were more than enough to slow the underlying growth of the US economy to a crawl.
