Scary Charts

Ezra Klein draws my attention to this chart which Business Week's Michael Mandel calls "the world's scariest chart." It's certainly a bit scary, but I'm not really sure how scared of it we should be.

I imagine, for example, that you could make some kind of chart plotting the ratio of iPod/iPhone expenses to GDP over time. You'd see that after decades of virtuous zero, the ratio has been steadily climbing at a clearly unsustainable rate. You'd see a similar trend in other countries, but with the U.S. far ahead of the pack. Now that's a scary chart. But of course all it would show is that Apple has succeeded in introducing some new products that people like to buy. Likable new products = growing share of GDP going to the products. And that's not scary at all, it's a good thing.

Loans, meanwhile, are, like iPods, a kind of product. And when new debt products are invented, the total amount of debt goes up. But this isn't necessarily a bad thing. The ability to take on debt from time to time is very useful for individuals and institutions alike. And certainly I think most people believe the invention of the 30 year mortgage was a good thing. And while it's of course better not to be carrying massive credit card debts, the whole existence of credit card debt is a consequence of the existence of credit cards and credit cards are, on the whole, useful things to have around. That's why they're so popular, and that's why there's credit card debt.

Which isn't to say that there's nothing to worry about in household debt figures, only that to see what, if anything, we should be worried about we need to know more than the bare fact that debt is on the rise. There are, moreover, some reasons to think that the savings rate in the country is being understated by the fact that things like expenditures on education are counted as consumption when they probably should be looked at as a kind of investment in human capital. After all, a 22 year-old college graduate who paid for school with some loans will be more indebted than a 22 year-old who's been working full-time for the past four years, but the one with the college degree probably has the better financial outlook.