zFacts has produced an interesting graph for the perplexed (here). It shows (click graphic above to enlarge) US National Debt as a percentage of National Income by Presidential term. It shows the Supply-Side debt disaster that started in the Reagan years and continues to the present. It also shows a great counterfactual: what would have happened if Reagan and the Bushes had balanced their budgets. In the counterfactual world, debt would currently be below 30% of National Income.
There's another interesting part of the graphic. Debt during World War II reached 120% of National Income and the US economy did not seem to have been damaged by this much debt in the Post-War years. What's more, a lot of that debt went to pay for equipment and armaments that were entirely expended during WWII and never had a productive lifetime. So, is 30%, 60%, 90%, 100% (the current number) or 120% the magic "bad number" for national debt?
Nations (especially a nation that plays the role of hegemonic leader in the world system) are not households. But, many business people (for example, here) seem to argue that the household analogy is appropriate so let's see where it takes us.
Let's say you make $100,000/year (your Personal Income) and you have a $500,000 mortgage (your only debt). You are a solid citizen with a good job, savings and a bright future. These numbers don't seem unreasonable. But, your debt to income ration would be 500%. Whoa, the deficit scolds would say. You can only have a mortgage of $120,000 to bring your debt in line with your income (that's not much of a house for a person with a six-figure income).
So, if a deficit scold was your banker, how could you have possibly obtained that kind of loan? Of course, it's not only income but also net worth that should be considered (does anyone want to guess at the net worth of the US Federal government?). Another way to look at the graph above is that Presidents from Eisenhower to Carter did not invest as much in the US as they might have and today we have an infrastructure that is crumbling due to lack of investment. And, money is basically free right now. A great time to invest.
Of course, there are good reasons why the household analogy fails. The US government can print its own money and households cannot. The US National Debt could be wiped out tomorrow by printing more money. Since we have no inflation right now, it's not really clear what the effect of such a one-time jump in the money supply might be but deficit scolds would yell "inflation" -- I'll look at the US money supply and what the Fed is doing in a future post.
So when people circulate videos such as the one below, the purpose is to scare the perplexed with large numbers. The debt is what it is. The debt from WWII was what it was and was probably necessary to end the Great Depression and win the War. The current debt level may be what is necessary to end the Great Recession (the Financial Crisis of 2007-2008), the worst economic downturn since the Great Depression, and win the War on Terror (lest we forget, the right wing is still at war with the Islamic world). Money is cheap right now and US infrastructure needs upgrading after decades of inadequate investment. The US is a safe haven for investment. WWII did not sacrifice the "future of our children" on the altar of debt. It ushered in decades of prosperity until the Neoliberal Right-Wing Supply Siders came to power. The upcoming Fiscal Cliff experiment will show how important government expenditure is during times of crisis.
