At the same time, higher inflation would lead to higher wages. With both prices and wages rising, workers would not get additional purchasing power, but they would see relative debt relief. That’s because monthly payments on most mortgages stay constant over time.

This combination of a less frenzied bidding war between home buyers and the erosion of monthly payments by inflation would work to bring down debt-to-income ratios.

Second, the U.S. could increase population growth by allowing more legal immigration. As Japan increased its rate of immigration in 2017, the economy, stagnant for decades, began to take off.

There are other less ambitious policies that the U.S. could adopt to increase the rate of investment. The 2017 Republican tax cut was a step in the right direction. (Though, as Warren points out, President Donald Trump’s trade wars with China and Europe have undercut the tax bill’s effect.) A large spending package for infrastructure projects could also induce more private-sector growth. In truth, however, any investment strategy would have a limited and temporary impact on the neutral interest rate and the tendency for the economy to build up debt.

Warren wants to raise household incomes. That’s an admirable goal, though I think her plans to raise the minimum wage and require large corporations to get a national charter would be counterproductive. Still, as long as the neutral rate of interest is low, the incentive for households and businesses to borrow more money, and for banks to lend it, remains.

Raising the neutral rate of interest through higher inflation and higher immigration are the only long-term solutions to reducing debt loads throughout the U.S. economy.

This column was provided by Bloomberg News.

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