Why Graph Debt as a Percent of GDP?

GDP is Gross Domestic Product — the value of everything “made in America” from pizza to the Blue Angels’ air shows. So this is the best measure of how rich the country is just in terms of the economy.

Now here’s the case for comparing national debt to national GDP:

  1. It’s the standard approach
  2. Originally I got most of the numbers right off Bush’s White-House web site — pre-calculated.
  3. You can get them from any OMB budget (1) The Office of Management and Budget, at the White House, publishes the president's proposed budget every year, and one appendix always list the historical debt/GDP values. It's the same for Republicans and Democrats, because it just makes the most sense.  or any Economic Report of the President.
  4. Both debt and GDP are measured in unadjusted dollars.
  5. When you divide, the dollars cancel out, so inflation has no effect, and cannot distort the answer.
  6. It’s sheer lunacy to say $997 billion debt in 1980 was far bigger than the $269 billion debt in 1946, because in 1981 the economy was 13 times bigger when measured in dollars.

What matters is how big your debt is compared with your income. A 12-year old with a $1000 debt is in deep trouble, but a 30-year old with a $200,000 mortgage and a $600,000 a year job is in no trouble at all. When Reagan said the 1981 debt was “out of control” at 31%  of GDP, it was like saying someone with a $200k mortgage making $600,000 a year has an out-of-control debt. It was just plain nuts. Yet the press never figured this out, so he got away with it.

In reality, Reagan started with the lowest debt (compared to our ability to pay) at any time in the last 50 years. And even in 1946, when the debt was at 121% of GDP, the country was in no trouble at all.

 

References

1.
 The Office of Management and Budget, at the White House, publishes the president's proposed budget every year, and one appendix always list the historical debt/GDP values. It's the same for Republicans and Democrats, because it just makes the most sense.