Reagan's Mistake

How could Reagan mistake the lowest national debt for the highest?

zFacts-2005-Nominal-Debt-Reagan.gif(Or was it on purpose?)

He forgot inflation and forgot the US was growing—size matters.
This graph compares the size of the Gross National Debt (the blue line, $T) with a typical part of the U.S. economy — spending on furniture. The vertical line (1979) is when Reagan got it backwards.
As can be seen furniture spending was at an "all time record high" in 1979, just like national debt. Was America going crazy on furniture? Was the debt going crazy? No. No. The country was just getting bigger and richer, and dollars were worth less. The debt was actually shrinking relative to the national income. That's why you can see furniture pulling way ahead of the debt when Reagan was elected. The whole economy was pulling ahead of the national debt. That's not a problem -- quite the reverse.
The most popular national debt web sites are still making Reagan's mistake.
The debt grew rapidly during World War II, but its growth during peace-time prosperity, starting in 1982, was unprecedented.


Debt Confusion

See the real US national debt graph here.

The most popular national-debt web sites continue the same confusions that caused Reagan to believe the national debt was higher than ever when it was at its lowest point since before World War II. Here is what you see when you look at the debt in nominal dollars.


The misleading nominal-dollar graph shown above comes from the Brillig site. That site has been reminded (via email) of the effects of inflation and as a result has corrected for it by adding the following graph. But this graph still ignores population growth and the fact that the country has gotten a lot richer in the last 50 years. The result is still tremendously misleading, but at least now you can see the Reagan rise and the Clinton dip.


The nominal Gross Domestic Product (GDP) takes all of these effects into account. It grows with inflation, population and increased income. By comparing the national debt to GDP, we get a fair check on whether it is growing or shrinking relative to what we can afford. That is why the White House web site give gross national debt as a percentage of GDP, which is what I have plotted on the page above.