The Skeptical Optimist

How to neutralize the National Debt's interest burden

This evening I read a new report by the CBO (Congressional Budget Office), which says that in the upcoming years, about ten percent of government spending will be allocated to covering the interest on the National Debt.  Hundreds of billions each year. . .

National Debt burden: Full history

Some of you who have seen the new National Debt Thermometer might be curious about the history of our debt burden.  That's the reason I assembled the graphic below.  (The Thermometer is a snapshot in time; the History chart is more like a movie.) 

As with the Thermometer chart, the focus is on facts.  Over time, I'll post my interpretations of those facts.  For now, just examine the chart and tuck away any facts that might come in handy for future discussions about deficits or the National Debt.  And please don't miss the most important fact on the History chart—the moral, which is this: Economic growth reduces the debt burden.  That's a fact, not an opinion.

Just click on the image below to view it in full size.

National Debt Thermometer: 29-Jan-05

A dose of dispassionate sanity is long overdue on the topic of deficits, the National Debt, and so-called fiscal discipline. As a result, I am today introducing the “National Debt Thermometer”—a color-coded chart comparing the debt burden of the USA to that of several other nations (see the chart below). I’ll publish it whenever our deficit spending increases the National Debt sufficiently to move the needle higher on the chart, or whenever our GDP grows sufficiently to move the needle lower.

This chart might surprise you. Why? Because it contradicts the emotion-packed conventional wisdom that the USA’s deficits and debt are marching us toward doomsday. But don’t look for any emotional overtones in this chart; it is simply a dispassionate display of the facts.

And what do those facts say? That’s the surprise. The facts say that our National Debt burden, contrary to popular hysteria, is a ho-hum situation: no big deal compared to other countries today, and no big deal compared to where we’ve been in the past. The facts say that the USA’s debt burden is lower than that of Japan, Canada, and France; on par with Germany’s; and higher than the debt burden in the UK, Russia, Iran, and Botswana.

Do those facts surprise you, compared to (a) what we always hear from politicians and ideologues on the subject of deficits and debt, or (b) the emotional hysteria on the web about ticking debt clocks and grandchildren-eating debt monsters? Sorry if it startles anyone, but facts can be stubborn things.

Check back here for periodic updates of the National Debt Thermometer. I’ll post a new one whenever the needle moves.

[Note: Every number that goes into the making of the National Debt Thermometer comes from official sources: the Bureau of Economic Analysis, the Treasury Department’s Bureau of the Public Debt, and the CIA’s World Factbook.]

Click this link to view latest month's National Debt Thermometer.

A real page-turner on GDP growth

For some reason, I enjoy finding a good nonfiction book on economic growth more than I enjoy spotting the next Clancy thriller. Why is that? Probably an abnormally-wired chromosome.

In any case, I'm 30 pages into a real page-turner by an ex-World Bank economist who can communicate with the rest of us in plain talk, as opposed to econo-speak: The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics.  It's a recent book about what works and (mostly) what doesn't work in the endeavor to help poor countries lift themselves out of poverty—but the fundamental lesson applies generally, not just to poor countries: successful programs require that the right incentives be put in place.

William Easterly starts off his book with a plain-talk explanation of why GDP growth is so important: "We experts don't care about rising gross domestic product for its own sake. We care because it betters the lot of the poor and reduces the proportion of people who are poor. We care because richer people can eat more and buy more medicines for their babies." Here it is:

Bid these with partner: 29-Jan-05

Call your bridge partner.  Then click on the red group below, while partner clicks on the blue group.  Each of you bids your two visible hands.  When finished, you can both discuss the hands using double dummy.

•SouthWest, •NorthEast, and •DoubleDummy
(Click on a color group.)

Deja Vu, Dad

I read this book twenty-six years ago, and remember how glad I was that I'd discovered it.  Four years later, I reread it—and remember thinking that was the last time I'd need it . . . so I forgot all about it.  No wonder it has disappeared. 

No wonder I couldn't find it anywhere yesterday, now that I need it again. 

I should have realized it would be needed every twenty-five years or so.  Why didn't I save it?  Oh well, there goes another three bucks wasted.  (It's not the first time I've wasted money, though.)

Anyway, the problem is now solved.  I bought a replacement copy from Amazon, and it is on its way to my son and his wife. 

Also: I've already told them I won't at all mind being called "Gramps."

Bid these with partner: 22-Jan-05

Call your bridge partner.  Then click on the red group below, while partner clicks on the blue group.  Each of you bids your two visible hands.  When finished, you can both discuss the hands using double dummy.

 •SouthWest, •NorthEast, and •DoubleDummy
(Click on a color group.)

Animal House at the Fed?

I'm watching interest rates closely now.  Why?  Because retirement will be upon me soon, and long-term rates are an important factor in one key component of my financial plan.

But now that I look at the data, a few simple (rhetorical?) questions keep nagging me:  Has the Fed Board of Governors learned from its past mistakes?  Have they even admitted to any past mistakes?

Click on the chart below.  If the Fed is supposed to be monitoring our economy and "leading the way," their track record reminds me of what the movie Animal House told us about how to become a leader: Find a parade, then run out in front of it.  That creates the appearance of leadership. 

The year 2000 jumps out at me. Wasn't the long-term bond market, starting in Jan. 2000, trying to tell the Fed that their policy was way too tight?  Didn't the stock market start saying the same thing, starting in April 2000?  Why didn't the Fed listen to the market?  The chart says they kept up the big squeeze for a full year after the market started signaling that they had already squeezed too much.

Conventional wisdom says the Fed knows how to pull all the right levers to help steer the economy in the right direction.  But the data tells me the Fed looks more like a kid who just can't seem to fathom how to ride a bicycle. 

Wise Words from Jane Jacobs

"The primary economic conflict, I think, is between people whose interests are with already well-established economic activities, and those whose interests are with the emergence of new economic activities.  This is a conflict that can never be put to rest except by economic stagnation."
-- Jane Jacobs (see below, p.149)

How to debunk an ideologue

Just go see how Jim does it to NYT columnist Paul Krugman, an ideologue who seems to suffer from a particularly extreme case of confirmation bias.  Jim's article, posted on 17-Jan-05, begins as follows: 

"Paul Krugman commits a cardinal sin of logic regarding Social Security, and repeats it, and repeats it... That logical sin: looking at an option and condemning it without considering the alternative."