We Can’t All Be In Debt

Stephen Gordon is a professor of economics at l’Université Laval and together with Nick Rowe writes the Worthwhile Canadian Initiative, one of the most informative reads on Economics news out there. He made a great point a while back that I keep forgetting to mention.

Average Debt dosen’t exist.

The debits and credits balance out. It’s a statistical impossibility to have an average debt. The average is a useless number.  As Nick writes: 

The average debt is zero. The distribution of debt has a zero mean. But the other moments of that distribution may be interesting.

Tell me about the variance of debt, if you like, but don’t tell me about the average.

Tell me about the debt of the top ten percentile, if you like, but be sure to count their credits as well, if they have any.

Tell me about a country’s foreign debt, if you like, but be sure to count its foreign credits as well, if it has any.

Aggregating the data just confuses isues and causes us to lose information. Average debt is a false number. 

Tell me about the average debt of those who have above average (i.e. above zero) net debt, if you like, but don’t pretend it’s the average debt of the population, because it isn’t.

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