Its most important function is to be the means whereby purchasing power not spent on consumption, nor recycled into income by the private creation of net capital, is recycled into purchasing power by government borrowing and spending. We have not had a satisfactory approach to full employment, except in wartime, since 1926. Over much of this century trends in the ratio of profitable private capital to national product have been downward, as a result of capital-saving innovation such as fiber optics, the trend to light industry away from steel mills and other heavy industry, and the increasing importance of services. Prospects are that for the foreseeable future the capacity of private industry to find profitable use for private capital will be not much greater than two years of gross domestic product. On the other hand aspirations of individuals to acquire assets to provide for retirement and other purposes have been growing, due to longer life expectancy, higher retirement aspiration levels, the loosening of family ties, the development of expensive medical technologies, and other factors.
Current aspirations appear to be moving towards three years or more of gross domestic product.
This leaves a gap to be filled by government debt of about one year of gross domestic product. To fill the gap between the asset aspirations of individuals at this level of income and the ability of the private sector to provide assets, the supply of government securities would have to rise to 10 trillion dollars, implying a level of income recycling by governments of about one trillion a year on the average over the next five years. Once this level is reached, to continue in equilibrium the supply of government securities will need to grow pari passu with the gross domestic product, to correspond to the gap between the demand of the population for assets and the provision of assets by the private sector. Whatever interest charges on the debt are not financed out of this growth in the debt can more than be met out of savings in unemployment insurance payments, and the increased tax revenues derived from the larger national product at rates no greater than at present. A 10 trillion debt with a full employment economy will be far easier to deal with than a 5 trillion debt with an economy in the doldrums.