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How Big Is the National Debt?

Dollar SignI've talked with a few people who think the national debt is a huge, huge problem that's just growing exponentially and uncontrollably. And while it's true that it is a major issue, and that the debt is currently growing, I think that many people look at the issue a little too simply, exaggerating the true nature and magnitude of the problem.

For reference and due credit, all the graphs in this entry are from the site, USGovernmentRevenue.com/, with many of them from the specific page, US National Debt and Deficit History. And I guess that as a disclaimer, I should note that economics certainly isn't my specialty, but much of this seems pretty straight forward.

The following graph shows the way many people think of the national debt, where it looks like the debt is just growing uncontrollably:

Federal Debt History

But that's a simple plot, looking just at raw debt numbers. To account for inflation and the growth of the economy, it makes more sense to look at debt as a fraction of GDP:

Federal Debt History as a Percentage of GDP

And while debt is certainly high right now, it paints a different picture than the simpler graph above. For one, it hasn't been just non-stop growing and growing, but different periods of growth and reduction. For another, the growth is currently slowing down, and is projected to start decreasing in the next few years. (I'll be honest - I'm not sure exactly where this source got their projections for the future, but even just taking that graph up through 2015, it's clear that debt growth is slowing.) Thirdly, it shows that the current debt isn't unprecedented. While it's nearing historical highs, the debt was actually higher during WWII.

You'd expect the debt to have grown in recent years due to the two recent wars and the Great Recession. The problem is the debt was so high already before that, thanks mainly to the governments during the Reagan and Bush Sr. years. Prior to that, the debt had been steadily reducing since the WWII peak. After them, under Clinton, the government had actually gotten debt back under control and it was on its way back down again before Bush Jr. took office. Under Bush Jr., the debt began increasing even before 9/11 or the 2007 financial meltdown, and those events just exacerbated the growth. If the projections in the graph hold true, it looks like under Obama, the debt might begin decreasing again.

Moving past the debt to the deficit, here's a graph of that:

Federal Deficit History as a Percentage of GDP

The current levels are a little high, but not too unreasonable when you consider the wars and the recession. Further, the deficit has been decreasing since the peak in 2009. And in even starker contrast than overall debt, that peak deficit was much less than what it was during WWII.

Related to deficit, here are charts of spending and revenue:

Federal Spending History as a Percentage of GDP

Federal Revenue History as a Percentage of GDP

Current rates are in line with what they've been since the '40s (other than the huge spending spike for WWII). Recent spending peaked in 2009 and has generally decreased since then. Recent revenue was almost a mirror image, reaching a minimum in 2010, and steadily increasing since. Those responses are exactly what you expect for a recession - the government invests in the economy through deficit spending when tax revenues will be at their lowest, but slowly recoups the cost when tax revenues begin increasing as the economy picks back up.

I'm not saying the debt's not an issue, nor that we shouldn't try to balance the budget. I'm just saying that certain alarmists that only point to the raw numbers without considering them as a percentage of GDP are presenting a misleading image of the issue and exaggerating the problem, often times advocating 'solutions' that are more extreme than what's really called for.

Image Sources: I actually made that 3D dollar sign myself. As noted above, all graphs are from USGovernmentRevenue.com/.

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