Tag Archives: inequality

Rising U.S. Debt Is The Real Cause of the U.S. Trade Deficit and Inequality

With Labor Day recently having passed, we got the usual round of stories decrying U.S. inequality, and blaming the decline of unions, the advance of technology, and/or the export of jobs to low wage countries for the fact that the average wage continues to lag behind inflation, as it has for decades.  Meanwhile, the U.S. current account balance  (the trade deficit plus investment and other flows) continues to be deep in deficit, as it has also been for decades, something President Trump blames on unfair international trade agreements and unfair trade by countries such as China, Mexico, and the European Union.  As a result, the Trump Administration is launching trade wars with countries all over the globe.  The only import he seems fine with is imported oil, which fuels terrorism and increases greenhouse gas emissions but also allows cheap gasoline.

But if U.S. workers are being paid less and less, to whom are businesses selling in order to make profits?   Workers and consumers aren’t two different classes of people; they are the same people at different times of day.   And if the U.S. has been importing more than it exports for decades, and has for decades had a financial deficit even when U.S. earnings on investments abroad are taken into account, then how have those imports been paid for?  The answer to both those questions is the same.  By having Americans, individually and collectively through the government, go deeper and deeper into debt and sell off more and more of our individual futures, and our collective future.  Rising debts, public and private, are what allows businesses to pay workers less and yet sell them more, and imports to be paid for without exports.  Neither could occur if debts were not rising, and if future retirements were adequately saved for.

It’s a financial house of cards disguising a global crisis of demand, one that would have collapsed in 2008 absent massive government intervention to bail out asset prices and the rich.  None of the real problems have been solved since, only deferred at a cost of shifting some of the private debt to the government — just as the Baby Boomers have started to retire in large numbers.

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America’s Debts: Sorry But Things Are Not Fine, and the Foreigners And Minorities Are Not to Blame

The Federal Reserve Z1 data on U.S. public and private debt was released for 2015 on March 10…


and I downloaded it and updated my spreadsheet to see if there has been any progress in getting this country and its inhabitants out of the financial hole.

Total Non-Financial Debt

There has not. Excluding the debts financial companies owe to each other, total U.S. debts varied between 128 and 142 percent of GDP from 1952 to 1981, a time of much greater equality in the U.S. than today. But by 2008 total non-financial debts had increased to 237 percent of GDP. To the extent there has been a recovery from the Great Recession, it is because this figure increased to about 252 percent of GDP in 2015. And the U.S. economy, and the global economy, remain at the point where, in the cartoon, Wile E Coyote has run off the cliff, is hanging in the air, and realizes that gravity is about to take him down.


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Debt and Inequality Go Together: Rising Debt Is the Cause of Rising Inequality

As a German economist once pointed out, while any individual business can increase its profits (and thus executive pay, if shareholders are powerless) by paying its workers less, businesses in general must turn around and sell things to those same workers to make money.  As inequality rises what they gain in the labor market they lose in the consumer market, as they must cut prices to make sales or see their sales fall.  The same may be said of trade – country A can only sell goods and services to country B if country B has the money to pay for it, from selling to country A or someone else.  For these reasons, debt and inequality go together.  Debt allows businesses to pay workers less and yet sell them more, and countries with trade surpluses to sell to countries with trade deficits. And so it has been in the United States.

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The Federal Reserve released the latest data on U.S. debts, for 2013, last week.  More charts and related commentary may be found below.

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