Deficits, the National Debt, and Economic Growth: What many politicians don't want you to know.
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One day recently, I was looking at an ominous picture of the Concord Coalition's Debt Clock on the editorial page of the Dallas Morning News. Next to the huge debt number stood an innocent young toddler named Cory, who was obviously no match for it. This was supposed to make me feel guilty for helping run up all that debt, I guess -- but I didn't. Instead, the picture took me back to my childhood for a few moments…

The Debt Clock: Single-number-itis
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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.

However, 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.

What 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.)

I 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?

But 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:

5.4 trillion raindrops every year (…is that a flood or a drought?);
5.4 trillion cold viruses attacking our population (…do we all have colds?);
5.4 trillion carbon monoxide molecules polluting our air (…are we all suffocating?);
5.4 trillion fire ants building nests (…are we all covered with welts?);
5.4 trillion flies looking for food (…will we all starve or get sick?);
5.4 trillion dinner-time phone solicitations (…will all of our dinners get cold?);
5.4 trillion lawyers trying to sue somebody (…will their fees and jury awards bankrupt us?).

(Just kidding on that last one; there are probably only half that many.)

Now 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?

Wait 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.)

The 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.

Here's 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.

Same 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.

But 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.

What's 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.

Debt-to-income 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 around two-thirds.

In 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.

To 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.

So 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?"

There 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.

End of this article
Last update of this page: June 24, 2001
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