$18 Trillion? No Big Deal

A recent client was bemoaning the fact that the United States has public debt totaling $18 trillion.  He was worried that this would cause an economic crash and would vote for a candidate who made a credible promise to reduce the debt.  He had been listening to gloom-and-doom political tonguewags who blame the current president for all kinds of dire statistics.  Our current level of debt cannot be laid at the feet of President Obama.  Even if he were personally responsible, the current level of debt is not a cause for concern.

Public debt is just one datum in a complex economy like ours. Just as an illustration, Wikipedia makes this observation:

In 2013, United States public debt-to-GDP ratio was 71.8%, according to the CIA World Factbook,[2] or 104.5%, according to the IMF including external debt. The level of public debt in Japan 2013 was 243.2% of GDP, in China 22.4% and in India 66.7%, according to the IMF, while the public debt-to-GDP ratio in 2013 was at 76.9% of GDP in Germany, 87.2% in the United Kingdom, 92.2% in France and 127.9% in Italy, according to Eurostat.

I cannot say whether these figures are accurate, but they point out that the level of public debt is not an accurate or adequate measure of the health of a national economy. The countries mentioned have very different economies and very different economic prognoses, although the economic strength of Germany, the UK, France and Italy probably line up in the order of their debt ratios. On the other hand, Japan is not on the brink of failure the way Greece is, even though Greece’s debt to GDP ratio was 157 in 2013 — much lower than Japan’s.

Think of it this way, lets assume that Stymie and his family have $90,000.00 income and pay $2,500.00 in rent, but have no debt. Fermi and his family have $90,000.00 income and pay $2,500.00 on a mortgage, but they owe $180,000.00 on their mortgage. Which family is economically stronger?

To judge the economic health of a nation, look at a number of factors: unemployment, employment, inflation, balance of trade, public opinion of whether the country is doing well, and so forth.  My perception is that the United States is doing better than public opinion seems to indicate. We are not in an an economic boom, but neither are we still in recession.  Our economy is strong and growing.  I also think that taxes and public employment are both too low, but try telling that to a TEA Partier.  The public debt fluctuates as a result of the country’s economy and level of taxation.  The economy can be nudged a little bit by fiscal policy, but whether we head into a boom or a recession is largely beyond the control of the government or any elected or appointed official or group of officials.  The public debt will subside when the economy improves and tax revenues increase.  President Obama is not in control of either of those factors.

On another blog, a reader said that if $18 trillion is not a problem, why not make it $30 trillion, or $100 trillion.  He asked whether there was any limit on how high the debt should be, implying that I was out of touch with reality.  This country would probably be fine with $30 trillion in public debt. However, I would want to know what the money is being spent on. If we are pouring money into costly military hardware with a high rate of depreciation and obsolescence, I do not think that would indicate a healthy economy. If we are building infrastructure (as long as we are not building bridges to nowhere), that might be very healthy.  Certainly there is a level that would be unsustainable, but were are nowhere near that.

The level of public debt is not a problem.  It is a symptom of economic trends.

John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200

©2015 John B. Payne, Attorney