The business cycle (like the problem of overconsumption) are myths. The issue is public finance. When taxes on the speculation sector are too low (for example, the cuts by Clinton and Bush to capital gains and dividends), it becomes more attractive to bid up asset prices and to create "innovative" financial instruments. This also hurts the consumption sector, as it sucks money out of lower performing investments - which leads to a need for the Federal Reserve to lower interest rates - which also allow for yet more garbage in speculation.
The only good thing in the 2017 tax cuts is that they did not decrease the 20% capital gains rate, nor did they do anything to repeal the 3.88 Affordable Care Act taxes on non-wage income. While the Trump rates did decrease growth by 1% by giving small increases to the capital sector (again, at the expense of the consumption sector), going further down the road to ruin due to speculation in crypto and rental single family homes was suspended due to liquidity caused by the pandemic recovery efforts. Essentially, the already failing housing bonds were propped up for a different reason.
Be sure not to confuse investment in plant and equipment with speculation (which is part of savings, not GDP). This is the most important thing to know about the relationship between public and private finance. The reason for the slow and steady growth in the late 50s, early to mid 60s was the willingness to have adequate taxation in place.
When Clinton kept taxes up (although his late in the administration capital gains cuts did fuel the tech finance boom - not tech itself), it put leverage needed to speculate in jeopardy. Without the leverage provided by public debt, you cannot expand the asset markets beyond the natural funding of assets such as home loans and plant and equipment finance (which respond to future consumption, not financial costs).
When debt finances asset price inflation, a crash is soon to occur. Don't make the debt by taxing adequately and keeping the economy going by adequate government salaries, contracts and transfers and long term growth will occur without boom-bust cycles. The fly in the ointment is the election of Republicans to Congress or the Presidency, who cut taxes that fuel the cycle.
The economic model laid out in the video left out the influence of speculation as the difference between available assets and those related to GDP. Trillions of dollars are junk. When that junk collapses, it destabilizes the financial markets. Stop making junk and begin the process of transferring productive assets to employees and households with minimal leverage and the junk sector can be reduced even further.
When debt finances illusory assets and the overpricing of real property (it is almost always about housing), then there is too much of it.
The ability to finance debt is related to the ability to pay it back. For example, when housing prices (most specifically location value) are at reasonable levels compared to wage levels, then housing can be said to be correctly priced. When it becomes impossible to afford land without speculative loan products, the price has become too high.
Public debt is owed in proportion to how government is financed - and the only way to really have big debt is to tax incomes. Without the income tax, America could never have become the world's banker. Unless China and/or Europe develop adequate income taxation that is linked in with the debt that backs their currencies, the US has a blank check.
If Europe united its debt (like Hamilton did for the states) adn a continent wide income tax was created, then the Euro would quickly compete with the United States as the global currency of choice. Until CCP, Inc. separates the party from wealth holding and then taxes high incomes adequately, it will remain a third world currency.
Even with a blank check, US debt is not sustainable (at least if lenders knew what to look for) because the ratio between income tax revenue and the national debt is too large. There is a tipping point somewhere, although we have not yet reached it. The tragic thing about tipping points is that, once reached, the economy is in ruin.
President Biden's proposals to raise capital gains taxes by 5% will deflate the asset sector in an orderly fashion. Not doing so entails extreme risk, especially to the holders of speculative capital.
On the asset side, government held debt is in the form of trust funds - which are usually revolving - retirement of civil and military workers and Social Security/Medicare. The latter is held mainly be recipients or future recipients. When recipients get the money, they will be part of the bottom income quintile (or the bottom two - but mostly the bottom). The public debt is held by financial assets, from federal reserve and bank holdings which are ultimately owned by depositors, long term investors and mutual fund/debt investors.
56% of long term and deposit assets are held by the top 10% of households. 77% of bond and mutual fund assets are held by the top 10%. Following the same percentage relationships (which match AGI relationships for income taxation), the top 1% holds 56% of the 56% long term and currency assets (a quarter), with remaining 9 percent holding the other quarter.
The mutual fund percentages follow the same rule. These are the funds which are used for speculative investment. They are mostly held by the top 1% - with a huge amount owned by the top 0.1%. Note that I am only describing national debt holding assets. The national debt is not held in speculative stocks. This is why speculative stocks are inherently worthless. In bankruptcy, they have no value. This is why mutual funds hold national debt instruments.
The top 1% of income mark is generally $500,000 per year. Ultimately, if the economy crashes because they pay too little in income tax, they will bear most of the losses - although working people will still have it worse off, absent robust social safety net protections or the kind of cooperative financial systems that keep the speculators out of the ownership of the workplace and housing sectors, i.e., cooperative socialism.
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