The Government Debt Needs a Denominator

The U.S. debt was much larger in 1975 than in 1945, at the end of World War II, yet the country was much less burdened by debt. The U.S government debt is more than 200 times as large as Zimbabwe's government debt, yet Zimbabwe is far more heavily burdened by debt. If these statements seem paradoxical, they shouldn't. To assess the indebtedness of a nation (or a person or corporation), you must know their income. A debt figure in itself will provide little information. One million in debt would be a very big deal to most of us. It would be virtually invisible to Bill Gates. In assessing the presidential candidates' various commitments, the NYT reports that they would add at least $5.7 trillion to the national debt over the next decade. This implies an increase of a bit more than 60 percent over the current level of indebtedness, which is a bit over $9 trillion. Since the economy is projected to grow by approximately 55 percent over this period, the growth in debt implies an increase in the ratio of debt to GDP of about 3 percentage points. That is more debt than I would like to see, but not exactly a disaster. More importantly, since the NYT gives no data on GDP, the article provides little basis for assessing the potential damage posed by running deficits of the magnitude projected. It is a very simple matter to include debt to GDP ratios in stories such as this. They should be there.

--Dean Baker