How I Was Wrong About Government Debt
By Bryan Caplan
When an individual owes three times his annual income, we think it questionable: Okay for recent home-buyers, but probably a bad idea. But when a government owes 300% of GDP in peacetime, we think it blatantly irresponsible. I’ve often been puzzled by the disparity. Why do so many freak out about U.S. government debt as soon as it exceeds 50% of GDP?
Only today, though, did I realize that these two private versus public debt figures are not comparable. The right comparison is government debt relative to annual tax revenue. By this correct measure, the U.S. is indeed in irresponsible territory. Take 2011: With government debt at 67.7% of GDP, and government revenue at 15.4% of GDP, the U.S. debt/income ratio was already about 440%.
Today Jeff Sachs wrote:
Yet the two parties just ran the most populist campaigns this side of a banana republic, and I do a grave disservice to banana republics these days to say so.
My initial reaction was to dismiss it as hyperbole. Now I’m actually worried.