Wednesday, August 29, 2012

John Steele Gordon: A Short Primer on the National Debt - WSJ.com


But while these numbers are fun to play with, they don't mean much. It's the debt's size relative to gross domestic product that matters, just as personal debts must be measured against a person's income before they can be properly evaluated. The GDP of the United States was $15.003 trillion at the end of the first quarter in 2011. That makes the public debt equal to 66.1% of GDP and the intra-governmental debt 31.1%. Total debt is now 97.2% of GDP and climbing rapidly.

And it's the climbing rapidly part that is worrisome, not the debt's current size relative to GDP. Indeed, the debt has been substantially higher by that measure in earlier times. In 1946, in the immediate aftermath of World War II, it was 129.98% of GDP. But while the debt had increased enormously during the war (it had been 50% of a much smaller GDP in 1940), it did not increase substantially over the next 15 years. It was $269 billion in 1946 and $286 billion in 1960. The American economy grew so much in those years that the debt, while slightly up in absolute terms, was down to only 58% of GDP by 1960.

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