May 21, 2009
I’ve gotten a number of people asking some permutation of the following question:
“Why don’t you give the national debt as a percentage of the GDP as a whole? Isn’t that more meaningful/relevant?”
My answer the the latter question is “Yes and no.”
The answer is “Yes”… in the sense that if you made $50,000 per year and you had $80,000 in debt, you’re more screwed than if you make $100,000 per year and you have $80,000 in debt.
But the answer is “No” for the purposes of making a visualization for the following reasons.
First, I didn’t frame the debt in that way is because it fundamentally hides some really important things that shouldn’t be hidden. I’ll go ahead and give the game away… I’m in the business of communicating numbers clearly. And using the debt-to-GDP ration feels too much like trying to hide the real meaning of the numbers.
It feels like a car salesman who refuses to talk about the raw numbers of the car you’re buying because when he talks about monthly payments, it’s easier to screw you. Because, really, what’s the difference between $287.87 per month and $359.60? It’s not that much, is it? And if you’re already spending $300, you might as well spend $350, right?
In the same way, talking about the debt in a percentage manner is hiding the true cost. So we increase the debt-to-GDP by 2.2%… big deal, right?
But that 2.2% is the same amount as everyone in the state of Washington makes in a year. Every. Single. Person. Go look at a Google street view of Seattle and try to count how many people live in a high-rise apartment building. Take a stroll down some of the swankier neighborhoods. Look at the obscenely expensive houses that line the bay. Everything every one of those people makes in a year. The more thought you apply to the real meaning of the number, the more you see that, while 2.2% might be an accurate number to describe an increase, it doesn’t even begin to communicate the scope.
That’s the first reason I didn’t use debt-to-GDP… becuase it violates the core principle of what I’m trying to do: give a clear understanding of the scope of the issue. When people use it, it feels like they’re looking around for the best possible way to represent the problem so that it doesn’t feel as big as it is.
Make no mistake, the problem is huge. Huge in a way almost none of us understand because our brains don’t process that kind of huge very well.
There are other problems with framing the issue this way too. One is that comparing the federal debt to the GDP is something of a misnomer because the government doesn’t own the GDP. The GDP is “owned” in part by everyone in the country. And all those people and business have their own debt (mortgages, credit card debt, student loans, business loans).
Quick, off-the-cuff example using very rough numbers: Sam makes $100,000 per year, but he spending $150,000 per year. As if that weren’t bad enough, he is $500,000 in debt already. But he tells himself it’s not a big deal because his kid is in college and that will only last a couple years and, besides, he has a business protecting houses and mowing yards for a living and if you combine everything his clients make in a year, it comes out to be almost $750,000 per year.
So if you look at how much he owes compared to how much his clients make, it’s only about 70%. And if his clients make $1,000,000 next year, he could owe $666,000 and there would be no change whatsoever in his “how-much-I-owe to how-much-my-clients-make” ratio. No problem!
Except that Sam’s clients are probably a little nervous about Sam comparing the truly absurd scope of his debt to the amount of money they make every year. Shouldn’t he be comparing his debt to the money he makes every year?
I could go on at length, and perhaps I’ll make a visualization about this, but right now I’ve got to work the day job.
May 16, 2009
I had a commenter for the National Debt Road Trip call BS on some of my numbers, so I wanted to run some sample numbers to make sure that I’m being as transparent as possible.
Complaint: “Obama’s projected to add about 9 trillion. That isn’t three times as much as Bush’s nearly 5 trillion.”
First of all, let’s get the numbers right. In raw unadjusted dollars, Bush increased the debt from $5.674 trillion to $10.024 trillion. That is $4.35 trillion, not five. And Obama has projected that he will increase it from $10.024 trillion to $20.004 trillion, which is $9.979 trillion… far closer to $10 trillion than to $9 trillion.
(Because I’m using the numbers from the TreasuryDirect site, I’m calculating from two months before Bush was elected (September 2000) until two months before Obama was elected (September 2008) for Bush’s data. I know that these calculations are somewhat clumsy, but I don’t think it is fair to assign Bush the debt responsibility for the Stimulus bill, which was entirely Obama’s baby.)
But still, $10 trillion is not three times $4.35 trillion. But that’s where inflation adjustment comes in. According to this inflation calculator, $5.674 trillion in 2000 dollars is the same as $7.035 trillion in 2008 dollars. This makes the inflation adjusted difference between the 2000 debt and the 2008 debt $2.94 trillion. It’s not pocket change, but it is certainly a downward revision.
I gave Obama a break by assuming that his team didn’t adjust for future inflation, so I made adjustements to his numbers, which meant cutting about $1.6 trillion off the debt leaving us with $18.4 trillion. This means he plans on increasing the debt by about $8.2 trillion (rounding down).
8.2 / 2.94 = 2.79 (the coefficient determining the speed calculation)
64 mph * 2.79 = 178.37 mph
Which is actually a shade faster than I said Obama was going.
I know most liberals aren’t going to believe this, but I really am trying to give the president the benefit of the doubt. In this video alone, I underestimated the inflation adjusted debt and I rounded everything down for him. If he doesn’t look good, it’s not my fault.
I know these kinds of posts are exceedingly boring for most people… even if I find them interesting. I’m doing them in the interest of transparency… so if someone says that my math is full of s***, they can look at this and do all the math themselves.