Debt Ballyhoo and Deficit Hubbub

Paul Krugman’s latest austerity rant, which is completely justified, brings up an interesting idea. What exactly is all the ballyhoo and hubbub about in government expenditures? The GOP is complaining that we’re spending more than we make. That’s not true.

Total government expenditures are only 26% of GDP – and that’s the highest it’s ever been.

US Expenditures

Basically, imagine your rent was only a quarter of your paycheck.

Also note that when Regan was office, your rent went up. When Clinton was in office, your rent went down.

So where’s the other 75% going? The credit card bill (a.k.a. debt)

raw debt to gdp

The other 75% of the nations income is going to debt. Remember – the credit card is for when times are bad – not when times are good, and you want to put a few wars on the credit card while you’re on holiday.

So is 105% of GDP in debt anything to worry about? In the long term yes, but not in the short term. Imagine you make $100,000 and you want a house that 26% of your total earnings over 30 years. You could afford a $780,000 house today (100,000*30/.26=780,000). But that would put you in debt by 700% of your earnings!

In the government equivalent, your debt-to-GDP ratio would be 700%, which, of course, would go down over the course of 30 years. But can anyone imagine the collective strokes the GOP would have at 700% of GDP?

And also remember Japan – with it’s 200% debt-to-GDP ratio: who has almost full employment, low inflation, and low interest rates.

Just as the charts show in the Clinton years, we spend, spend, spend now on social programs in bad times, and the debt sort of takes care of itself over the long haul. How? Because people go back to work and pay taxes – raising the nation’s collective income. Paying 75% of ZERO on the debt because no one has a job (and the rich don’t pay taxes) is a lot worse than 75% of $16 Trillion with full employment.

It’s all GOP ballyhoo and hubbub

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