Deficit vs. Debt vs. Debt-to-Income

A lot of people ask a question like this:

Great video, However, in the video you include Jimmy Carter as reducing the deficit.  As much as I like Jimmy Carter, his administration started out with a deficit left over from Ford of $ 77 billion and ended up with a deficit of $ 85 billion.  If I’m wrong let me know.

The Answer:

Off the top of my head, I think you are, as you say, talking about the deficit. The video is about the debt, and more specifically about the debt as a % of GDP. So I think you are probably right about the deficit. That’s how much the debt increases from one year to the next (and there are various definitions of debt–I use the one the Republicans use and put on the national debt sign in NY — the big one).

OK, so your deficit numbers tell us hat the debt was going up every year — what gives? Well that’s right, but the countries income was going up every year. Under Carter is was going up really fast because of inflation > 10% and normally the economy grew (in a real sense — inflation is fake growth) by 3%. So over 4 years the economy got much bigger.

So even though the debt was getting bigger,  we were getting bigger much faster. When you are 10 years old, a $1000 debt is a big deal. When you’re 30, you many have a $100,000 mortgage and that may be not a problem at all. You are far bigger economically when you are 30, so a much bigger debt is, in effect much smaller.  Watch the first part of video again. It explains a little more.

Also the $85 billion was probably worth a lot less than the $77 billion due to inflation.