Of National Debts and Train Wrecks

One hears much hand wringing of late about the national debt, and the catastrophe it portends unless we bring it under control. Everyone has an opinion about it, but very few seem to actually understand what it is, or the extent to which it is really out of control, or even unprecedented. Based on the recent data point represented by the experience of Greece, we can safely conclude that excessive debt is potentially problematic. The trick is in determining whether, as the prophets of doom would have it, the particular train we are riding will encounter a brick wall around the next bend, or will continue to wheeze along as before for the foreseeable future.

Certainly, the train wreck hasn’t happened as quickly as some of the Jeremiahs expected. Paul Krugman, for example, predicted runaway interest rates and hemorrhaging inflation as long ago as 2003, in the expectation that the government would try to print its way out of the problem. The printing presses have been busy enough, but so far we’ve been spared a repeat of the Weimar Republic in 1923. Of course, the New York Times’ nobel laureate may yet be vindicated, but we’re not there yet.

If you try to get a handle on the problem, you soon realize just how slippery it really is. Take, for example, one of the more commonly used diagnostics in the field, public debt as a percentage of gross domestic product, or GDP. According to the CIA, in 2009 the figure for the United States was 52.9%. This compared with 192.1% for Japan, the developed country at the top of the list. The current interest rate for home mortgages in Japan is just over 2%. The reason often given for such apparently counterintuitive facts is that Japanese citizens save more than their US counterparts. It would seem, however, that it is possible for a nation to carry a much higher public debt than the United States and still not suffer exploding interest rates.

There are often great disparities in the numbers one sees bandied about on the Internet, even on pages that quote the same source. Economicshelp.org, for example, quoting the CIA figures, gives the “national” debt of Japan as the same 192.1% cited above, but lists the United States at a mere 39.7%. The same site, however, pegs the “gross” debt of the United States, which includes such things as internal pension and social security obligations, at 90.8%. According to usgovernmentspending.com, which lists the numbers going all the way back to 1792, that number has now risen to 94.27% compared to a historical post-war maximum of 121.25% in 1946. Checking these numbers at Wikipedia, it appears that the 39.7% number was taken from the CIA list for 2008, not 2009. The comparable number reported by the Organization for Economic Development and Cooperation for the same year was 70%, and the International Monetary Fund had it at 61.5%. Pick a number, any number.

Moving right along, the usually conservative Washington Times projects a public debt vs. GDP of 90% a decade from now in the year 2020. That still looks positively rosy compared to Japan’s current rate of more than twice that amount. On the other hand, we are told that Spain will soon follow Greece into the abyss, but the CIA put its public debt in 2009 at 50%, more than 2% less than that of the US.

Obviously, we are comparing apples and oranges here. For example, how does one roll the combined debts of the States of the United States into the numbers so that they can be compared with the debts of the Departments of France or the Lands of Germany? How does one compare the internal debt of the US to its Social Security trust fund to its Japanese equivalent?

All these obscure numbers and incoherent outcomes are fertile ground for alarmists of every stripe with ideological axes to grind. Sometimes the results are amusing. For example, in a recent article that appeared in the leftist German Spiegel magazine, Marc Pitzke, who specializes in Amerika bashing, seemed to be channeling conservative talk show host Sean Hannity. Their messages are identical; the US debt is out of control and we face imminent disaster. Pitzke trots out the usual fare about the recent growth in the deficit one usually hears from such odd bedfellows as Hannity and Limbaugh, but is short on numbers that make any rational comparison between the United States and Europe. According to the closest attempt to such a comparison I could find,

Europe’s national debt seems positively harmless in comparison to the USA. The total indebtedness of the Euro-zone in 2009 amounted to around seven trillion Euros, just 70 percent of the American amount.

Pitzke doesn’t explain why the US debt is a cause for hysteria but an amount 70% as great is “harmless,” nor does he elaborate on the fact that the public debts of Italy, France, Germany and the UK, the four biggest economies in the Euro-zone were 115%, 79.7%, 77.2% and 68.5% of their GDP’s, respectively, in 2009, compared to 52.9% for the US.

And the upshot of the sport? I suppose that we can keep muddling along as we are for quite some time before the “Desasters, Debakels, and Katastrophes” that Pitzke and the editors of Der Spiegel so eagerly hope will be our lot finally overtake us. I certainly don’t find the situation attractive, but there you have it. To a large extent, a modern economy is a con-game. When the suckers lose confidence, the train will hit the wall. When that will happen is anybody’s guess.