A dissertation idea

[unsolicitedadvi]

Let me begin by introducing myself: I’m a sell-side analyst on Wall Street and partner at an investment bank, despite an academic background outside of finance (not uncommon on WS). I am far, far too old to do a PhD, but there is quite clearly a topic that demands research because it is exploited and misunderstood both by journalists and politicians of various political viewpoints despite rather clear understanding of the issue in finance (albeit significant confusion and disagreement in academic economics).

The issue is namely the relevance of national assets both publicly and privately held to analyzing the sustainability and economic impact of public debt. While the Laffer curve is not taken seriously anymore except by the most partisan and biased people, concerns over debt sustainability have a central point in policymaking--to the point that Biden’s cabinet is fretting that “the pantry is going to be bare” when they take office, implying that too high public debt will limit the ability to produce more coronavirus-relief stimulus. The MMT response that debt can be created in infinity because of sovereign money printing abilities is not a cogent answer, since the experiences of many nations demonstrates that government debt DOES matter sometimes and will result in inflation during the right conditions. What those conditions are, how they come about, and how they can be quantified is shockingly glossed over by debt hawks, who often take a moralistic tone about debt (even academic economists--John Cochrane and Bryan Caplan, for instance).

Meanwhile the dovish side, particularly the MMT crowd, simply dismiss a need to understand those conditions.There is a research opportunity here, and a very simple one: determine the conditions in which government debt produces inflation and establishing a limit to how much debt a country can manage. This is nothing new, and it is customarily measured via the debt-to-GDP ratio. However, any first-year analyst at a bank will tell you this is a bad measurement; specifically, it is mixing up stocks versus flows.While such a comparison is important to gauging debt serviceability in some instances, the much more important gauge for establishing the creditworthiness of an entity is always analyzing debt to assets.

The debt:asset ratio question is central to all fundamental analysis in credit and equity markets, but it is almost unheard of on the very important question of the natoinal debt.Few researchers have tackled this issue. Elizabeth Holmquist and Susan McIntosh, when they were at the Federal Reserve, did a cursory study (FRB: FEDS Notes: U.S. Net Wealth in the Financial Accounts of the United States). To my knowledge, there has been little analysis of the issue since, yet it is a very simple and effective way to cut through the unproductive discourse on the left (“deficits don’t matter print forever”) and the right (“we’re going to be Zimbabwe soon”) with a rational, data-driven, and empirical assertion: America can have X amount of debt because it has Y amount of assets and we know from this analysis that when that ratio hits Z we get higher inflation.

This is an obvious PhD topic, and if I were younger or in a position to get another PhD it is something I would pursue, as I think the power of this research to improve public policy AND public discourse in America is overwhelming. That is why I’m posting this here, in the hopes that someone sees this and is at the very least inspired to pursue this kind of reasoning if they don’t outright run with this idea entirely (which I very much hope someone will do).

[startz]

This is an interesting question, but probably a terrible dissertation idea. A good dissertation idea requires an interesting question that one can figure out how to answer. A clearly correct answer to this question is likely to lead to a Nobel prize, not just a PhD.

[tm_member]

This isn't related to graduate school admissions. Closed.