As part of that long-term project, I’ve been looking at the long-term debt history of the United States, using both the Fed’s flow of funds data (which start in 1952) and the earlier, not quite comparable, data from Millennial Historical Statistics. Here’s what I think is a key chart; it shows nonfinancial private-sector debt as as percentage of GDP:
One thing that jumps out is the surge in the debt ratio during 1929-33, which is due to a plunge in GDP rather than a rise in debt — call it Irving Fisher’s revenge. Another is the fall in the debt ratio during World War II, reflecting a combination of income growth, low borrowing, and some very helpful inflation; I’d argue that this debt reduction played a key role in the economy’s ability to avoid a relapse into depression.
But a broader point is the U-shaped trajectory over time. This matches up with a lot of things. Gary Gorton’s “quiet period” of freedom from financial crisis probably has a lot to do with low debt, as well as deposit insurance. The trajectory also matches long-term trends in income inequality and political polarization.
More on this eventually; for now, I think the data are really interesting.