Our Ballooning National Debt

This time last week I created one of my more unique posts. A commenter suggested that if I was in search of a topic I could write about what I thought of the "ballooning national debt." I usually try to keep closer to the personal Five_Presidents finance theme than that, but a request is a request.  Gotta keep the readers happy.

The first thing to say is that anybody who confidently predicts any particular result from borrowing so much money is full of it. Nobody really knows what the long term effects are or what will happen next. We can speculate on it, and some prognostications may be more reasonable than others, but ultimately these are all just educated guesses.

With that disclaimer out of the way, let’s start with the big picture. Below is a chart of the US Federal Debt as a percentage of GDP. I got the data from the useful site usgovernmentspending.com.



I believe that viewing the total debt as a ratio to GDP, that is, to the size of the overall economy, is the best way to understand just how big it is. And isn’t. There is a lot of buzz around now about how totally unprecedented the current level of debt is. They even had to modify the national debt clock to allow for another digit, don’t ya know.

That’s true, but once you adjust for inflation and the growth of the economy over time, you realize that what we have now is not, quite, an all time high. That title goes to 1946, when in the aftermath of the Second World War the government owed the equivalent of 121% of annual GDP. The current projection for 2010, 98%, isn’t radically lower, but it can’t be said that we are someplace we’ve never been before.

And for all the dire warnings about how we are mortgaging our children’s future, it has to be acknowledged that the decades following 1946 were pretty darn good economically.

That does not mean that we should expect no ill effects from our current binge of government largess. Firstly, the WWII spending was understood to be a one-time thing that needed to be undone as quickly as possible. By 1948 government expenditure had been reduced to less than half of what it had been in 1945. The government actually ran a surplus for five of the six years 1947-52.

Secondly, it would be foolish conclude that the high debt levels of 1945 caused or even contributed to the post-war prosperity. Beating the Nazis was probably a good investment, but in and of itself it is hard to imagine how having that much government debt around could have helped. The most reassuring thing that can be reasonably said is that the economy grew in spite of the high levels of debt.

Of course, nobody seriously argues that the debt is a good thing, only that is not as bad as all that. More to the point, just about everybody agrees that increasing the debt is a bad thing, but that it’s preferable to raising taxes or failing to spend money on a favored government program. For just about as long as any of us can remember, this has resulted in a political compromise wherein we sacrifice our vague worries about the debt so we can have our cake and eat it too.

The core of  the problem, in my humble opinion, is that those worries are so vague. It is intuitive that more government borrowing is a bad thing, but what exactly is bad about it is beyond most of us. The best explanation I can give is that government debt is a sort of artificial substitute for real investments, the kind that involve building factories, developing technologies, and otherwise growing the economy. The more government debt is around to compete for our investment dollars, the less the economy grows in the future.

If a growing debt wasn’t so abstract, if it had some kind of immediate and obvious consequence, our elected representatives might handle it better. Being told that a larger government debt is a bad thing is like being told that you should eat better and exercise more. It’s not that you disagree, it’s just that your current lifestyle is pretty comfortable and until you have that heart attack it is hard to get yourself motivated.

I am fond of saying that the problem with democracy is that we get the government we deserve. In a nation where Swoopo can prosper, Roth IRAs confuse people, and until relatively recently millions thought that house prices could never go down, is it any surprise that the national debt grows?


  • By Beth, November 10, 2009 @ 4:26 pm

    This chart is misleading in one very important way: We had over 30% of the workforce serving in the military from 1942 until 1947. Military personnel do not contribute to GDP, so our GDP for those years was artificially low. In comparison, we have approximately 1% of the workforce serving in the military now.

    If you adjust your comparison to account for this effect, you will find that today’s situation is worse than the WWII era.

  • By Jim, November 10, 2009 @ 7:03 pm

    Thanks for putting the current debt level into a proper perspective.

    Beth, the GDP actual grew from ’42 to ’45 due to the massive war output.

  • By Andrew Stevens, November 10, 2009 @ 7:35 pm

    For the simple reason that military spending probably shouldn’t be counted in GDP since it doesn’t actually improve people’s lives, but it is in fact counted toward GDP.

  • By Phil, November 11, 2009 @ 5:26 am

    Sorry for the seeming non-sequitur, but Andrew’s comment made me think of my favorite Robert Kennedy quote (1968).
    “Too much and too long, we seem to have surrendered community excellence and community values in the mere accumulation of material things. Our gross national product … if we should judge America by that – counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for those who break them. It counts the destruction of our redwoods and the loss of our natural wonder in chaotic sprawl. It counts napalm and the cost of a nuclear warhead, and armored cars for police who fight riots in our streets. It counts Whitman’s rifle and Speck’s knife, and the television programs which glorify violence in order to sell toys to our children.

    “Yet the gross national product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages; the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage; neither our wisdom nor our learning; neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile. And it tells us everything about America except why we are proud that we are Americans.”

  • By Rob Bennett, November 11, 2009 @ 9:23 am

    just about everybody agrees that increasing the debt is a bad thing, but that it’s preferable to raising taxes or failing to spend money on a favored government program.

    Preferable how?

    You mean preferable politically.

    Which is another way of saying “preferable because this way we can fool ourselves about the negative side of what we are doing.” That’s the reason we shouldn’t be doing it, not a reason why we should be doing it.

    Yes, the danger is a vague one. That’s what makes it enticing to take on far more danger than we would if we could see things straight. I’d rather take on risks knowingly than play games that cause me to take on far more risk than I can afford.


  • By Patrick, November 11, 2009 @ 11:06 am

    @Frank: Don’t hurt your brain making this more complex than it needs to be. The problem with huge debt is huge interest payments. That’s hundreds of billions of tax dollars collected and handed to banks with zero benefit to taxpayers.

  • By Craig, November 12, 2009 @ 10:31 am

    The government of the United States can, at this moment, borrow money for two years at less than one percent interst, and thirty years at about four and a half. That’s very cheap money–something that is reflected in the chart you link to.

    And it would be strange indeed if all government spending did indeed provide “zero benefit” to taxpayers.

  • By Black Card, November 13, 2009 @ 6:36 am

    As long as the nation keeps on paying the minimum monthly payment on the national debt everything is going to be fine, so why worry?
    That is how the system is designed to be, to pay the minimum monthly payments forever, the debt will grow sure, but that is in the best interest of those who own this nation, and you know who owns the US nation right?

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