The Toothbrush Theorem and the Debt Bubble

I just spotted a finance application to a general principle. The principle itself is well enough known, although so far as I know, it does not have a name. So, call it "the toothbrush theorem." Allow me to explain.

Start with a particular example. In a Pat Barker novel (I forget which) there is a teen-ager who hates her stepfather. Every morning, she takes his toothbrush and runs it around the inside of the toilet bowl rim. I told this story to Mrs. Buce and she instantly responded: that guy must have the best immune system in the world.

Exactly so. The toothbrush theorem: disease, germs, viri, have a habit of building up resistance in odd or unexpected places.

Here's another example: I grew up in the era before polio. My mother lived in dread that I would get the disease. She did everything she could to protect me against it. In particular, she certainly wasn't going to let me swim in the river, which was not that far downstream from a sewer. In fact I did not get polio, but a friend of mine did, and was permanently paralyzed, and eventually killed himself.

All this was done with the best of intentions. But we know now that she had it backwards: in retrospect, we know that polio struck the middle class, those children with protection. The protected ones were those kids out cavorting downstream from the sewer.

And a third example. Go back to, say, the middle ages. Nobody--not even the king--was rich, but the masses lived in unspeakable privation. This was true everywhere, but it appears that the masses in Japan may have suffered even more than the Europeans. Why so? A plausible answer is that the Japanese were too clean. So they lived longer, and there were too many, fighting for too little. The Europeans, by contrast, rounded out their privation with squalor and filfth. So many died of disease. There was this much of a comfort: at least there werent' so many survivors to compete for the limited resources [recall in particular the horror of the Black Death in 1348: almost every student agrees that the masses who survived the great plague lived rather better after than they did before, because there were fewer of them.

So now the finance case. I'm reading Henry Kaufman's The Road to Financial Reformation. He is discussing the 1980s, a great golden age of debt: the growth of debt, he declares, exceeded the nominal growth of the gross national product. And did so without interruption: unlike almost any other boom time, there were no financial crises or panics. Granted, there was the great selloff of 1987, but in retrospect, this was a blip. There was not one of those fractures that induce large debt liquidations. So the very success of this golden age drove debt virtually out of control. The toothbrush theorem lives.