An Example of Poor Analytics - The Federal Debt
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Being a policy nerd, this article about the federal deficit caught my eye.
The US National Debt and the President Who Grew It by 722% | 24/7 Wall St.
The article looked at the change in the federal debt for all presidents, beginning with Theodore Roosevelt. It was no surprise that Woodrow Wilson and Franklin Roosevelt topped the rankings. All they did was lead the nation during two World Wars.
In retrospect, this was a clickbait piece. It took less than a minute to look at the entire list. I later realized that the article missed the most important point. The size of the debt matters, but the debt to Gross Domestic Product matters more. Using CoPilot, I created this table.
A few things stood out to me in the table.
Ø I would have expected that ratio to increase more under George W. Bush than it did, given the aftermath of 9/11 and the Afgan and Gulf wars.
Ø I was surprised to see that the change under President Obama was as large as it was, given the health of the economy at the end of his second term. He did have to cope with the 2008 recession and the Agfan and Gulf wars.
Ø The size of the increase under President Trump surprised me, given he only served one term. Granted, COVID was part of the equation.
Ø I was surprised to see the ratio fall under President Biden. This means the economy grew faster than the debt.
The more important takeaways.
Ø According to the Treasury Department, over the last 100 years, the debt grew from $394B to $35T.
Ø Using the Minneapolis Fed's Inflation calculator, $394B in 1924 equals $7.2T today.
Ø The St. Louis Fed says that a healthy ratio depends on several factors, and one size does not fit all. They do not offer an opinion on the current level of debt.
Ø The World Bank reports that the tipping point for sovereign debt is 77% of GDP.
Ø Until President Obama, the US was well under the World Bank's tipping point.
Neither party is talking about the federal debt in the current election cycle. There are two main reasons for this. They believe there is more important messaging. Both candidates proposed policies that would increase the deficit.
The other reality is that politicians do not want to discuss what it will take to get us back to 70%. Accomplishing this will require two things. First, revenues must increase, and politicians hate to talk about tax increases of any kind, especially ones of the size required. Second, spending must decrease. Every spending program benefits someone's constituents; no politician wants to explain why a program is going away.
In addition to this, the reality is that solving the problem is a long-term activity, and politicians have little inclination to focus beyond the next election cycle. After all, one of their main objectives is to get re-elected.
The result is that we are not getting the leadership we need from either party.
Related Articles
When Does Federal Debt Reach Unsustainable Levels? | Penn Wharton
National Debt by Country / Countries with the Highest National Debt 2024 | World Population Review
Debt-to-GDP Ratio: How High Is Too High? It Depends | Federal Reserve Bank of St. Louis
Inflation Calculator | Federal Reserve Bank of Minneapolis
What is the national debt? | US Treasury Department
U.S. debt hits record high as rich economies pile on IOUs | Axios
"Finding the Tipping Point—When | World Bank
1 big thing: France's fiscal faceoff | Axios
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Quotes
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- Shane Parrish
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- H. Norman Schwarzkopf
"Furious activity is no substitute for understanding."
- H. H. Williams
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