During the current global financial crisis there has been a lot of talk about US government debt. So I decided to spend a little time getting my head around the numbers. It turns out the beavers that build wikipedia have done most of the work for me. However this puzzle depends a little on how you look at things. At first glance debt levels don’t look too shocking.
The line of most interest is the net debt position of the government. The red line in the chart. In relative terms it is hardly at any sort of long term historical high. And whilst debt levels were lower in the 1970s that period is hardly an advertisment for good economic policy.
Making the numbers even more respectable is the extent to which the debt is interest free. As indicated by the following chart about half the US government debt does not cost the government anything at all in the way of interest.
So far the debt situation in the US doesn’t look too dire. However when we project forward (always a tricky activity) on the assumption that there is no reform to social security or other benefit programs then we get a less palatable view of things.
Clearly this image is dire. However it would seem to be a future problem rather than a current problem (but still a problem). It would seem to suggest that rather than having a debt problem the US currently has an entitlements problem that if untreated will become a debt problem (or a disappointment problem). Given the historical context I am unconvinced that reckless US government borrowing of a recent nature has been the prime cause of the current financial crisis. Although I far from convinced that all that spending has been wise.