A new NBER paper documents a strong, secular increase in US corporate borrowing during the Keynesian era.
Unregulated U.S. corporations dramatically increased their debt usage over the past century. Aggregate leverage – low and stable before 1945 – more than tripled between 1945 and 1970 from 11% to 35%, eventually reaching 47% by the early 1990s. The median firm in 1946 had no debt, but by 1970 had a leverage ratio of 31%. This increase occurred in all unregulated industries and affected firms of all sizes.
Not surprisingly, this change reflects government policy:
Changing firm characteristics are unable to account for this increase. Rather, changes in government borrowing, macroeconomic uncertainty, and financial sector development play a more prominent role.
Further evidence for the long-term lengthening of the economy’s capital structure, not from technological improvement, but from the government’s policy of always keeping interest rates below their market levels.