The US Office of Management and Budget last month released its latest numbers of US federal debt as a percentage of gross domestic product. According to the OMB, the federal debt is now at 100 percent, which makes it similar to debt levels reached during the aftermath of the second world war when the US was still dealing with its massive war debt. Indeed, since 2008, federal debt levels have been at 50-year highs and at levels one would expect from a country in crisis or at war:
Defenders of deficit spending, however, claim that 100 percent of GDP is not particularly alarming, and some point to the fact that, in comparison to other wealthy nations, a debt level of 100 percent is not anything special. For example, if we use the World Bank’s data on central government debt, we find that the US falls below Japan, Italy, and even the UK:
While Japan, Greece, and Portugal all certainly have their budget challenges, the deficit-spenders say, none of these places are on the verge of collapse. Moreover — it is often pointed out— the US benefits from the fact that it controls the global reserve currency and can thus monetize its debt more freely than other states.
Soothe-saying comparisons to places like Japan and Italy are becoming less convincing as time goes on — considering the flat-lining economy in Japan and the looming banking crisis in Italy — but the claim nevertheless persists that the US is not exactly first in line when it comes to debt loads. As long as Portugal and Italy appear stable, it seems, the US has little reason to worry.
But, there is a problem with this measure.
Calculating debt levels as a percentage of GDP don’t really tell us all we want to know about a state’s ability to manage debt.
If we want to know the extent to which a debt load is concerning, we must look instead at a state’s revenue, rather than just its GDP.1
When we make comparisons of debt as a percentage of tax revenue, the US is no longer in the middle of the pack. Now, the…
If we want to know the extent to which a debt load is concerning, we must look instead at a state's revenue, rather than just its GDP.1
When we make comparisons of debt as a percentage of tax revenue, the US is no longer in the middle of the pack. Now, the US has the second-largest debt in the world:
