When I was a kid, I had a couple friends who came down with tonsillitis.
I've also known some people who've suffered from bronchitis, colitis,
or bursitis. Fortunately, though, friends and family have never
contracted encephalitis or poliomyelitis. All those afflictions
-- some deadly, some merely unpleasant -- have been eradicated
or mitigated by modern medicine.
as I pondered Cory and the Debt Clock that day, I think I spotted
an affliction that's impervious to modern medicine. I started
calling it single-number-itis. Doctors and pharmacists can't help
with this one, because it's not a medical problem, it's an emotional
economics problem. Vote-seeking politicians all over the place
have come down with it. Moreover, the affliction seems to be highly
contagious, because the politicians have been infecting a lot
of voters and donation-seeking special interest groups. Republicans,
Democrats, independents, conservatives, and liberals all seem
to have suffered from it at one time or another. Single-number-itis
is the common cold of the deficit/debt debate.
is it? "Single-number-itis" is what happens when somebody
cites a single number, then starts drawing all sorts of sob-story
conclusions about it. It's a whole bunch of logical fallacies
wrapped up in one funny-smelling package: hasty generalization,
question-begging, ad populum, special pleading, and appeal to
ignorance. (See my page on logical fallacies in the Library section.)
presume you too have seen the Concord Coalition's Debt Clock flash
the national debt number: 5.4 trillion dollars and climbing. It's
supposed to scare us into sending them a donation, and for some
reason, it seems to be working. It is insidiously spreading single-number-itis
throughout the USA. How could anyone not feel sorry for innocent
little Cory next to that horrendous debt figure?
how meaningful is that single, $5.4 trillion debt number? Before
we answer that, let's look at a few other facts, and the questions
they beg. The USA also has more than:
let's go back to the debt number and the questions it begs: 5.4
trillion dollars of debt. Is that a recipe for financial disaster?
Are we already bankrupt? Is it a burden on our children? Are we
borrowing to pay interest? Are we spending our kids' money and
throwing them to the loan sharks? Will interest consume our grandkids'
entire federal budget, and more?
a minute. Is $5.4 trillion even a big number at all? (That's a
related subject covered elsewhere in this website; see my page
titled "Our Teeny-Tiny National Debt",
in the Home section.)
point is this. We cannot draw meaningful conclusions from single
numbers. Is 5.4 trillion raindrops bad news? That depends. If
5.4 trillion raindrops fell on my kids' lemonade stand in thirty
seconds, it would put them out of business; but if 5.4 trillion
raindrops were all that fell in the USA in a year, it would be
a horrible drought. A single number is not enough information
from which to draw meaningful conclusions.
another example. Is a $5,400,000 mortgage too much on a house?
If it's my house: yep. If, on the other hand, it's Bill Gates'
house: nope. Bill Gates has the assets and the income to make
that look like a tiny mortgage and a safe debt level; on the other
hand, I don't.
logic applies to nations. Is 5.4 trillion dollars of debt bad
news? That depends. It would probably mean instant national bankruptcy
(i.e., hyperinflation, or debt repudiation) if it were suddenly
piled onto a country like Albania or Cameroon. Reason: they don't
have the assets or the income to support it. In other words, the
debt in relation to assets or income would be overwhelmingly bad
news. Default on interest or principal payments would begin almost
immediately -- and that is the definition of national bankruptcy.
the USA is not Albania or Cameroon, is it? We have more assets
and more income. In fact, we are the wealthiest nation in the
history of civilization. Moreover, our assets and income are continuing
to grow each year.
the value of the USA's assets? That is the right question, because
the answer would give us a basis for meaningful comparison. Debt-to-assets
is a key ratio used by bankers who are trying to judge the financial
health of a company that wants a loan, and would be a beautiful
antidote for national debt single-number-itis. But valuing national
assets is tricky; I've seen estimates of $18 trillion, $30 trillion,
and $100 trillion. There's guesswork and value judgment involved,
and I won't get into that here. Suffice it to say that, even if
it's "only" $18 trillion, the resulting debt-to-assets
ratio would be so favorable that the USA would be a juicy takeover
target -- if it were a publicly-traded corporation. But we need
a comparison that's a little more solid than a difficult-to-quantify
assets estimate; fortunately, we have one.
is a ratio that's admittedly not quite as good for this purpose
as debt-to-assets, but it's a lot easier to get at, because National
Income is a readily-available statistic. It's almost the same
thing as Gross Domestic Product (the amount of measurable wealth
we produce each year). The USA's debt-to-income ratio is currently
other words, our annual national income is about half again as
large as our total debt. When I think of my personal finances
in those same terms, I conclude that I'd love it if my annual
income were half again as much as my mortgage. So would my banker.
And if my income grew larger each year, my debt-to-income ratio
would get better and better. Even if I kept adding new debt on
top of old debt, the ratio could get better, not worse. So maybe
the good ol' USA isn't in such dire financial straits after all.
summarize: The antidote to single-number-itis is the meaningful
comparison of two relevant numbers. Debt-to-assets and debt-to-income
are rational ways of placing national debt into its proper context.
the next time you see the scary number on the Debt Clock, do what
I do. First, have a good chuckle. Second, start asking those politicians
and special interest groups some tough questions. "Don't
you have a National Income Clock to go along with that? How about
a Debt-to-Income meter? If debt continued to grow, but not quite
as fast as National Income grew, would we be getting better off
or worse off? What if deficit/debt reduction caused a drop-off
in National Income -- would that be good or bad? How much National
Income is there for every man, woman, and child in America? Did
the Concord Coalition borrow any money to help fund the Debt Clock?
Was the Debt Clock a good investment; i.e., did their donation
income grow because of it?"
are hundreds of other questions we could ask, but the important
thing is to start asking them. We need to get the national debate
off of deficit/debt reduction, and onto the right track: how best
to grow National Income.