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I personally think much of what drives the Tea Patry hatred/phobia/hysteria over our out-sized National Debt-- is that they've visited one too many web-sites like this one, which are long on scary visuals, but short on actual answers:

Such Debt-phobic web-sites, paint a very bleak picture. Often one without relative context or intelligent solutions. Those sites who do dare to offer such prescriptions/constrictions, generally focus on the 'Debt to GDP' metric as a their barometer that 'proves' we "borrow too much," compared to times past:

The GDP theory goes, that if the Economy does good (GDP: Gross Domestic Product) -- then the National Debt will eventually get paid down too, due to the increased economic activity.  By some sort of "supply-side" osmosis, I guess. Perhaps by all the extra sales tax on chewing gum purchases ...

There is a new school of thought however, that is challenging that simplistic premise.  One that shifts the borrowing focus back to 'Revenues' -- instead of the strength of the Economy (just like banks do before they lend out 'their' cash).

Debt to GDPThe Red Herring of Red Ink

by Alex Engler, Georgetown Public Policy Review -- Oct 10, 2012

Debt-to-GDP is a favored statistic concerning the debt -- many believe there is no better single number to compare a government’s financial obligation with its citizens’ potential to pay that obligation. This may be true, but this metric is still highly limited and its predictive power is diminished in the case of the United States.

Debt-to-Revenue Ratio

Yet it is a substantial oversight to ignore debt in relation to government revenue. The economy at large is not directly responsible for paying down the debt -- the federal government is. In light of this, contrasting debt to federal government revenue adds a beneficial context. In fiscal 2012, when the United States collected $2.4 trillion, that ratio was a stunning 464 percent.

Of course, 2012 was a year of relatively low revenue, due both to tepid economic growth and to temporary tax reductions. These factors inflate the debt-to-revenue ratio in the short term, but the fact remains that it is a staggeringly large disparity.

The thing about the 'Debt-to-Revenue Ratio' is, that it focuses us on applying the solution -- Raising Government Revenues -- instead of focusing on the shiny object of 'rising profits' -- that are being garnered by the volume of "stuff" being sold in the overall Economy (GDP). The sale of Product or Services may, or may NOT, result in actual increases in Revenues that pay down our Debts -- depending on the current Tax Loopholes and Accountants, available to the richest benefactors of GDP growth.

Remember that Wall Street itself, is fueled by 'Earning and Profits' reports, is it not?  This could help explain 'the popularity' of the GDP -- as a 'measure of health' for our overall Economy.  A rising GDP, means rising profits, means rising stock prices.

But rising stock prices do not always mean rising Government Revenues. Quite the opposite, when the shiny perks of Capital Gains and CEO Compensation plans, are taken into account. A rising GDP can actually lead to falling Government Revenues, given the Corporate drive for self-preservation at all costs.

In other words, the 'GDP-to-Debt Ratio' is not a very accurate measure of our credit-worthiness -- our ability to pay down the National Debt. It is actual Government Income that pays down our Government Debt -- it's NOT the income of the wealthiest among us that does. They have their Cayman Island ways of avoiding such Government obligations.

Interestingly, even some of the titans of Wall Street (or their employees) may be starting to see this royal disconnect with linking the Debt to GDP. This analyst from Morgan Stanley makes a strong case for changing our Debt-gauge metrics. It would seem that titans too, may actually WANT TO SOLVE the National Debt problem someday (and NOT just rant and throw tantrums about it).

Forget Debt To GDP, It's Debt To Revenue That Matters -- And The U.S. Is The Worst

by Gregory White, -- Aug. 25, 2010,

From Morgan Stanley's Arnaud Marès (emphasis ours):
Whatever the size of a government’s liabilities, what matters ultimately is how they compare to the resources available to service them. One benefit of sovereignty is that governments can unilaterally increase their income by raising taxes, but they will only ever be able to acquire in this way a fraction of GDP. Debt/GDP therefore provides a flattering image of government finances. A better approach is to scale debt against actual government revenues (see Exhibit 2). [...]
And Morgan Stanley put together a chart to make that comparison. The U.S. position, relative to its ability to raise revenue, looks weak compared to Europe:

As any household owner knows {I know a Sovereign Government IS different that a Household -- but still 'people relate' to this analogy}, you can't have Out-go without Income.  If your debt is nearly 4 times (400% of) your income, you might be a tad over-extended.  A smart person would start "doubling up" on their credit payments then; (they wouldn't "doubling down" on refusing to pay their bills, as those in the Tea Party are all too ready to do.)

Well, without the Revenues coming into the IRS [Income], the US National Debt [Out-go] will most likely just keep growing -- given the forces of inflation and compassion and infrastructure decay, already baked into our national cake. Most Americans like our level of Civilization. Living in a fortified bunker, is not on the Majority's To-Do List.

Unfortunately the Tea Patry hordes have a hatred/phobia/hysteria about Paying Taxes too which provides for our "quality of life." It seems they think that Society (aka our 'general welfare') will somehow magically heal itself, somehow magically pay for itself, if only the GDP-Job-Creators are given enough 'economic bribes' for them to finally kick-start the Economy. These Wealth Creators however in the Tea Party worldview, should NEVER be asked to pay one red-cent more in Taxes -- Because THAT could hamper the GDP!

SO, the next time you meet a Debt-phobic ranter that wants to dismantle the Government piece by piece, ask them if they think the Government has a legitimate right to "collect more revenues" (ie taxes).  When they say 'Hell No' -- tell them the Constitution says 'Hell Yes' ... to raising taxes for the benefit of our society.

The Constitution says NOT TO question "validity of the public debt of the United States" (Amendment 14).

The Constitution tells us to "insure domestic tranquility"; to "promote the general welfare"; to provide for our security and for the security of those who will follow us. (The Preamble).

The Constitution DOES NOT say "shut it all down" -- think only of yourself;  It DOES NOT say build a bunker, and declare war on the "domestic tranquility" and the "general welfare" of those "others" who also call America "home".

It does say "Raise Taxes" to provide for Society.  It does say that MORE than once.  (Article I, Section 8; Amendment 16).

THEN ask the Debt-phobic ranter "Do you respect/love/cherish the Constitution?"

When they assert 'Hell Yes!', then tell them "Then pay your damn Taxes. Because that is the basic obligation of being an American.  It's in the Constitution."

Of course if we had Economic Metrics that actually linked our Debt to our Revenue -- rather than linking to "our economic activity" -- then all this "personal politicking" would be unnecessary -- since over-time the economic system could become "self-correcting." Revenues could automatically be adjusted to rationally pay-down our "household" Debts.  Abrupt halts, full stops, cut everything -- is not a rational policy. And it does not address the real problem -- the very real National Income problem.

And afterall, isn't that what we all want -- to solve our "common" National Problems -- even those who fear our National Debt, above all else?

-- I ask you.

Originally posted to Digging up those Facts ... for over 8 years. on Sat Oct 05, 2013 at 09:06 AM PDT.

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Comment Preferences

  •  Good point (1+ / 0-)
    Recommended by:

    Though getting that through the thick heads of the people in Congress may not be so easy. Don't forget that there are plenty of corporate dems in our party who aren't leaping for joy at the chance to fix the problem either.

    •  if we change the metrics (0+ / 0-)

      the corporatists will eventually follow

      -- that or risk the wrath of Tea.

      •  The corporatists need to understand basic (1+ / 0-)
        Recommended by:

        national accounting, as the US does not balance a check book to begin with.  It doesn't have a check book.  It has a money making machine and creates dollars out of thin air in order to fund the private sector with it's incomes.

        And actually, many corporate folk are perfectly aware of this, but they use analogies to households to confuse both average folk and our stupid representatives.

        Corporations know that dollars are their means to record in their private ledgers a net financial asset, and have no intention of reducing the deficit, cuz the deficit = their income.

        And they know that the total deficit is merely an accounting number keeping score of how many dollars are in the private sector.

        What they want is to be the first in line when the fed gov funds the public sector to purchase from, and make grants to, members of the private sector.

        Their deficit hysteria is to scare the average person into believing that, like households, the US might run out of dollars, and/or the deficit will leave a burden on their grandchildren.

        As if accounting marks ever burden anyone.

  •  Jamess you're 100% correct but it would go (3+ / 0-)
    Recommended by:
    a2nite, jamess, BlueDragon

    over the head of the average Tea Party voter. Their message "the debt it too high" is simplistic but it also easier to sell than "the debt to GDP ratio isn't historically high". What we need is a catch phrase or short-hand way to express this idea if we want to compete for the same voters they are targeting with this message.

    -1.63/ -1.49 "Speaking truth to power" (with snark of course)! Follow on Twitter @dopper0189

    by dopper0189 on Sat Oct 05, 2013 at 09:28:23 AM PDT

    •  What we need is to understand that the fed (1+ / 0-)
      Recommended by:

      gov makes accounting marks to issue dollars, coins, tsy bonds, and reserves to the private sector, thus funding all our incomes, including our ability to pay taxes.

      What we need is to counter the household meme with, "But households do not deficit spend  to fund a nation with it's incomes, and households do not create dollars out of thin air to do so".

      People need to understand that our total deficit is a number keeping score of how many dollars are in the private sector.

      And claiming that the total deficit is too large = claiming there are too many dollars in the private sector.

      And if that is the case, then we should identify where all those excess dollars are.

  •  Why does debt even matter (2+ / 0-)
    Recommended by:
    jamess, BlueDragon

    instead of how you have to 'service' that debt?

    What would seem to matter would be the payments on that debt as a fraction of GDP or revenue. Most people starting out with mortgages have a Debt/revenue well in excess of 100%, but if the interest rates are low, and if the term is for an extended period of time, the 'load' on their finances could be quite moderate.

    For 2012, US net interest payments on the debt was $220 billion, compared to tax revenue of $2.45 trillion.

    •  The "national finances are like a household's" (2+ / 0-)
      Recommended by:
      jamess, Ozy

      meme needs to go.

      The fed gov deficit spends to fund our nation with our incomes.  Households don't.

      Households can be debt free.

      If the total deficit were paid to $0, there'd be $0 dollars in the private sector.

      Households also don't issue a fiat currency out of thin air.

      Thus households, unlike the fed gov, needs to earn it's dollars.

      The fed gov merely  ISSUES  our national currency, thus funding our incomes, including our ability to pay taxes.

  •  Just a smokescreen (1+ / 0-)
    Recommended by:
    The GDP theory goes, that if the Economy does good (GDP: Gross Domestic Product) -- then the National Debt will eventually get paid down too, due to the increased economic activity.
    Well, yes.  Think of the millions of workers who'd like to make more income, and by the way, make enough to pay some income tax--they don't want to pay the tax, but they're willing to if their pay was high enough.

    The problem isn't the debt to GDP ratio.  The problem is that they look at the numerator.  Look at the denominator.  Increase GDP.  Increase the number of workers.  Increase the workers wages.  No more debt problem.

    The whole discussion about a debt problem is a smokescreen.  There is not and never was a debt problem.  There was a spending problem.  Too much spending during the Bush administration where he paid for his Iraq war adventure game with debt, and too little spending during the Obama administration to get us out of this deep recession.  

    The 0.01% want to dismantle the social safety net to they can pay less in tax.  That is it.

  •  Linking to revenue is the next step (1+ / 0-)
    Recommended by:

    Comparing debt to GDP was already a measure of the ability to raise revenues to pay, though not necessarily the willingness to raise those revenues.

  •  Create wide spread prosperity and so many (3+ / 0-)
    Recommended by:
    BlueDragon, jamess, katiec

    things just cease to be problematical. How can there be any form of reasonable "Capitalism" when such a vast amount of money is tied up in the hands of so few?

    There can be no protection locally if we're content to ignore the fact that there are no controls globally.

    by oldpotsmuggler on Sat Oct 05, 2013 at 12:09:09 PM PDT

  •  How many dollars does the private sector need to (1+ / 0-)
    Recommended by:

    work at full capacity?

    Then that's exactly how large or small our total deficit should be.

    It seems that most economists forget that the fed gov deficit spends to fund a nation with an income.

    The deficit is an accounting of how many dollars are in the private sector.

    How many inches does it take to build a house?  Depends on the  house you want to build.

    How many units of account, ie, dollars, does it take to build a nice  real economy?  Depends on how much labor and natural resources you can buy with your unit of account.

    The deficit should simply float against the real economy, just as inches should float against the house.

    And then we should focus on just how much private credit should be created, as private bank money is the private sector's debt.

    Fed gov money is the private sector's net financial assets.

    If the deficit is too large for the real economy to absorb, then you'd want to remove dollars from where there are too many.

    If too many dollars at the top somehow crowds out the ability of the fed gov to issue new dollars to buy idle capacity, then remove them.

    The focus on the deficit is silly in and of itself.

    It's always the real economy that matters.

    •  PS: Total deficit = how many dollars are in the (1+ / 0-)
      Recommended by:

      private sector, including the ones funding our foreign trade deficit, and domestic actors who devote their dollars to conducting foreign trade.

      Public Sector -1 = (Domestic + 1/2 - Foreign Trade + 1/2)

      No one seems to talk about our trade deficit much.

      A Public Sector Surplus with a Foreign Trade Deficit looks like this:

      Public +1 =  ( Domestic Private -2 - Foreign Trade +1)

      If you want both the Domestic Private Sector and the Public Sector to be in surplus at the same time, then you have to have a large enough Foreign Trade Surplus to pay for it.

      And since we fund domestic actors with dollars to conduct foreign trade, that means the rest of the domestic private sector -- mostly workers -- fund both the public sector surplus, and foreign trade deficit.

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