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How Bad is the National Debt Really?

I’ve heard a lot of people quoting numbers like “the national debt is nearly $200,000 per person.” If you look on Google, for example, the first thing that comes up for ‘”national debt is” “per person”‘ is this page, which gives a figure of $161,287. There are also comparisons of GDP against the deficit, GDP against the debt, and so on. You know, I often find economics confusing and frustrating (why is it that Larry Kudlow and Paul Krugman can look at the same data and get nearly exactly contradictory interpretations?) but I can read a balance sheet and income statement, and this whole comparison struck me wrong. It would seem that national debt is a balance sheet figure while GDP is an income statement figure. I asked a well-known economist this, and he agreed with me that national debt should be compared for this sort of purpose with national wealth, leading to a kind of national net worth. (He asked not to be quoted, no doubt because he was embarrassed for me at such a prominent economist being asked such simple question.) this gave me the right keyword, though, and a moments googling led me to this chart…

from business week article

… from Michael Mandel’s Economics Unbound blog. Suddenly things look a big different. Yes, we’ve got something like $162,000 in individual share of the national debt — but we’ve got something like $300,000 share of the national wealth. And it’s increasing; it was the highest in 2006 that it’s ever been. Notice some other things:

  • this is in constant dollars — inflation isn’t an issue;
  • this is total national wealth — it may be impacted to some extent by the housing decline, but (since housing is only a small part of the national wealth) not very much;
  • this, from the discussions I’ve seen, probably doesn’t include asset values for things like un-recovered natural resources.

Now, this gets interesting. Put it into individual terms: for a family of four, this puts their share of the national wealth at around $1.2 million, and their share of the national debt at about $648 thousand — or, just to make the comparison more glaring, about $0.648 million.

Even potentially more interesting, look at where the inflection points happened: the national net worth started to decline as the recession start, in 2000, along with the .com bust. When does it start to go up again? At about the time the Bush tax cuts came into full effect (see here).

What else happened about that time? Why, the Iraqi campaign of the current war, of course. So, somehow with all the expenses of the war and all, national net worth is increasing, and has been since the war started.

Remember this the next time someone tells you how the Iraq War is sapping our national wealth.

(originally published in Pajamas Media 2008-02-21.)

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