Debt levels impact economic growth from "summary" of House of Debt by Atif Mian,Amir Sufi
Atif Mian and Amir Sufi argue that the level of debt in an economy has a significant impact on its overall economic growth. When households and businesses have high levels of debt, they are more likely to cut back on spending in order to reduce their debt burden. This reduction in spending can lead to a decrease in economic growth as businesses see lower demand for their goods and services. Furthermore, high levels of debt can also make consumers more vulnerable to economic shocks, such as job losses or decreases in income. When consumers have high levels of debt, they are less able to weather these shocks and are more likely to default on their debt payments. This can lead to a decrease in consumer spending, which in turn can further slow economic growth. Mian and Sufi also point out that high levels of debt can lead to a "debt overhang," where businesses and households are so burdened by debt that they are unable to invest in new projects or make necessary purchases. This can stifle innovation and productivity growth, further dampening economic growth in the long run. On the other hand, when debt levels are low, consumers and businesses are more likely to spend and invest, which can lead to increased economic growth. Low levels of debt can also make consumers more resilient to economic shocks, as they have more disposable income to weather unexpected events.- Mian and Sufi argue that policymakers need to take into account the level of debt in an economy when making decisions about monetary and fiscal policy. By understanding the impact of debt on economic growth, policymakers can implement policies that promote sustainable growth and stability in the long run.
