Last February, I posted the chart on the right showing the full history of the USA’s debt burden (debt relative to the size of our economy, or 64 percent today)—and that chart has become a popular one; it’s all over the web now.
Importantly, it should not be confused with the raw debt level (7.8 trillion dollars today, the chart on the left).
Why has the chart on the right attracted so much attention? Because it comes as a surprise to a lot of people. Let’s face it, we’ve been carefully taught for generations that national-debt-doomsday is only a generation away. (I waited a generation for debt-doomsday to arrive; it never did. That was when I started thinking about economics a little harder.)
A dichotomy
Based on my frequent visits to Google News to survey what people are saying about the USA’s National Debt, I can safely say that the whole crowd shakes out into two camps:
1. Those who trumpet the raw dollar level of debt (or deficits) are usually trying to make a political statement, under the guise of “economics.”
2. Those who are truly interested the economics of debt and growth tend to place debt into context by referring to the “debt-to-GDP ratio.”
Choose your weapon
Do you expect to engage in any debt discussions in the near future? If so, what follows will help you prepare.
If your goal is to make a political point about the “obscene” level of debt, you should stick with raw dollars. Go to Google images, search for “national debt history,” and support your argument by using the first image Google returns. Also, when discussing the debt, keep hammering away at the raw dollar level of debt; use words like "obscene," "crushing," and "headed for bankruptcy" to leave a lasting impression.
The following examples will help you build your talking points:
• Here’s how a liberal northern California politician uses the debt number to scare our kids.
• Here’s how a liberal, truth-loving blogger uses it to bash hated opponents.
• And here’s how a conservative author/talker uses it to sell books.
Warning: Be prepared to address the question “Do you really think Malawi, with a debt of ‘only’ $17 billion (228% of GDP), is in a safer debt position than the USA, with an ‘obscene’ debt of $7,800 billion (64% of GDP)?”
On the other hand, if you are truly interested in exploring the economics of debt and growth, focus on debt-to-GDP and inflation control (…it’s cheating when a nation inflates its way into a lower debt-to-GDP number). Go to Google Images, search for “debt burden history,” and support your argument by using the first image Google returns. When discussing the debt, keep hammering away at the debt-to-GDP ratio.
Here are examples to help you build your talking points:
• Here’s how investors judge the implications of a nation’s debt.
• Here’s how Canada has explained “How big is the debt?”
• And here’s an American’s attempt to inject sanity into the debate.
Warning: Be prepared to address the questions “How much of a debt burden is too much?” and “What is a safe level for debt-to-GDP?” This graphic should help with that question.
Also, be prepared to discuss economic growth; it is a frequently-ignored but very important aspect of the debt-to-GDP ratio. This article, and also this one, will help foster that discussion.
