TO FOLLOW-UP on the previous post, let me address the mystery of just why growth through America's recovery has been so slow. The argument that seems to be winning the day this week is that deleveraging to blame. Before the recession, the argument goes, firms and households accumulated unsustainably large mountains of debt. In the wake of the recession, households are struggling to rebuild their balance sheets. Because they are labouring to pay down debts, consumption is and will remain depressed, and that must inevitably constrain growth.

Deleveraging is a problem. And as The Economistwrote two weeks ago, the process of deleveraging has only just begun, though America has made greater progress in addressing debts than other countries. Can we really pin the blame for the disappointing recovery on indebted households, however, as is argued by David Leonhardt?

We are living through a tremendous bust. It isn't simply a housing bust. It's a fizzling of the great consumer bubble that was decades in the making. The auto industry is on pace to sell 28 percent fewer new vehicles this year than it did 10 years ago — and 10 years ago was 2001, when the country was in recession. Sales of ovens and stoves are on pace to be at their lowest level since 1992. Home sales over the past year have fallen back to their lowest point since the crisis began. And big-ticket items are hardly the only problem. The Federal Reserve Bank of New York recently published a jarring report on what it calls discretionary service spending, a category that excludes housing, food and health care and includes restaurant meals, entertainment, education and even insurance. Going back decades, such spending had never fallen more than 3 percent per capita in a recession. In this slump, it is down almost 7 percent, and still has not really begun to recover. The old consumer economy is gone, and it's not coming back.

I have to say, I find this a difficult story to accept. Or perhaps I should say that I could accept this story if Mr Leonhardt began it with the bold-faced caveat, "Given the current path of government policy...".

There are two points worth making here. One is that we should recall the growth identity Y = C + I + G + X. Mr Leonhardt is arguing that growth is slow because C, consumption, is depressed by deleveraging, and also because I, investment, is depressed by the lacklustre outlook for household consumption. Even if we accept this line of argument, there are two letters left. The X refers to net exports. There is only so much that can be done to support net exports, and the scope for an export-led recovery is reduced by the fact that so many countries face the same debt dilemma as America, but relatively easy monetary policy in America has helped facilitate a dollar depreciation which has, in turn, supported net exports. A more aggressive monetary policy would have meant a lower dollar still, and more X.

There's also G: government consumption and investment. Debtors are working hard to pay down their debts. In doing so, they transfer money to creditors. What are the creditors doing with it? To too great an extent, nothing, which is why interest rates are so low. But this means that the government can borrow cheaply and use the opportunity to make needed investments and support critical government consumption. Unfortunately, the government has done the opposite. State and local governments have cut back their budgets dramatically. The federal government's efforts to boost the economy through greater borrowing mostly offset these cutbacks, and the federal government is now following state and local governments down the austerity path. Insolvency needn't be a concern; if the government really felt the need to reassure bond markets, the best thing it could do would be to reduce the long-run path of spending on health care. Instead, it is focused on cutting short- and medium-term borrowing. Mr Leonhardt does mention this failure, I should say.

The second, and more important, point is that a debt burden, on its own, doesn't tell you very much. The debt accumulated prior to the recession became a burden on households because the recession was associated with a large drop in asset values and a decline in expected income. In other words, debts are troublesome because it's now harder for Americans to pay them.

But that needn't necessarily be the case. Mr Leonhardt seems to be arguing that high debt generates a slow recovery which leads to high unemployment. One could reverse the causation, however; high unemployment reduces expected wages, which increases the real burden of accumulated debts and slows recovery. Unemployment exacerbates deleveraging at least as much as deleveraging exacerbates unemployment.

The government's ability to affect real growth is constrained, but real growth is highly correlated with nominal growth, and the government's ability to influence nominal growth is absolute. The Federal Reserve could commit to faster nominal GDP growth and begin using the tools available to get there. Some portion of the growth in nominal GDP (and I'm willing to bet the lion's share) would represent a real increase in output. The outlook for investment would look better, employment conditions—and expected incomes—would improve, asset values would rise, and deleveraging would quickly (almost as if by magic) seem like less of a problem. Or maybe the Fed's efforts would translate into little new growth and lots of new inflation. That's hardly the worst outcome; a few years of above-target inflation would go a long way toward easing debt burdens.

So yes, it's true that growth is slow and that deleveraging is a factor influencing the trajectory of the recovery. But you have to put household debt in the appropriate context. Mr Leonhardt's argument comes too close to absolving the government of the responsibility to make policy appropriate to the state of the economy.