Tuesday, July 22, 2008

What is the Real National Debt?

On February 15th, Peter G. Peterson announced the formation of the Peter G. Peterson Foundation. Leading the new foundation as President and CEO is David M. Walker, who served as Comptroller General of the United States for the last nine plus years. This page of their website lists the mission of the new foundation as follows:

We are dedicated to increasing public awareness of the nature and urgency of several key challenges threatening America's future, and to accelerating action on them. To address these challenges successfully, we will work to bring Americans together to find sensible, long-term solutions that transcend age, party lines and ideological divides in order to achieve real results.

Further down the page are listed the challenges of "large and growing budget deficits, dismal national and personal savings rates, and a ballooning national debt that endangers the viability of Social Security, Medicare, and our economy itself". Regarding the debt, this page of the website asks the question "What is the Real National Debt?". That page lists the components of the U.S. government's approximate $53 trillion in current obligations.

Having studied various measures of the federal debt, it seemed that it would be useful to summarize those measures in a format by which they could be easily compared. The following table shows many of the main measures of U.S. federal debt, both in billions of dollars and as a percent of GDP:

U.S. FEDERAL DEBTS AND LIABILITIES (billions of dollars)

Annual Related
Debt or Liability 2006 2007 Change Measure
========================== ======= ======= ======= =======
Debt Held by the Public... 4829.0 5035.1 206.2 162.0 (Unified Deficit)
Intergovernmental Debt.... 3622.4 3915.6 293.2
-------------------------- ------- ------- -------
Gross Federal Debt........ 8451.4 8950.7 499.4

Net position*............. 8916.4 9205.8 289.4 275.5 (Net Operating Cost)
Assets^................... 1496.5 1581.1 84.6
Social Insurance Exposures 38851.0 40948.0 2097.0
Other Commitments......... 1100.0
-------------------------- -------
Total Current Obligations. 52834.9

Gross Domestic Product.... 13015.5 13667.5


Annual Related
Debt or Liability 2006 2007 Change Measure
========================== ======= ======= ======= =======
Debt Held by the Public... 37.1 36.8 1.5 1.2 (Unified Deficit)
Intergovernmental Debt.... 27.8 28.6 2.1
-------------------------- ------- ------- -------
Gross Federal Debt........ 64.9 65.5 3.7

Net position*............. 68.5 67.4 2.1 2.0 (Net Operating Cost)
Assets^................... 11.5 11.6 0.6
Social Insurance Exposures 298.5 299.6 15.3
Other Commitments......... 8.0
-------------------------- -------
Total Current Obligations. 386.6

* This is actually the negative Net Position so as to be comparable to debt.
^ Assets are added back to the negative Net Position to get Liabilities.


Additional data and the sources can be found at http://www.econdataus.com/usdebt07.html. As can be seen in the above table, the debt held by the public plus the intergovernmental debt equals the gross federal debt. The intragovernmental debt is chiefly held by trust funds with a bit more than half of it being held by the Social Security trust fund. A list of these trust funds can be found at the aforementioned link. In any case, a further discussion of these debts can be found in my post of February 19th.

Net position equals Assets minus Liabilities as estimated by the Financial Report of the United States Government. One interesting thing about Net Position is that it includes liabilities for civilian employees, the military, and veterans. The gross federal debt includes monies owed to the civil service, military, and veteran trust funds but I have not seen the full liabilities for these programs listed in any other document. In any case, a further discussion of the Net Position can be found in my post of June 16th.

Unlike the gross federal debt, the Net Position contains no measure of the monies owed to the Social Security and Medicare trust funds. These are included, along with the present value of the exposure of Social Security and Medicare over the next 75 years, in the Social Insurance Exposures. This is the main contributor to the $53 trillion figure mentioned at the beginning of this post and listed as Total Current Obligations in the table. A further discussion of Social Insurance Exposures can be found in my post of June 23rd.

Finally, Other Commitments in the table refers to federal insurance payouts, loan guarantees, and leases as stated at this link. This plus the Liabilities (equal to Assets minus Net Position) plus the Social Insurance Exposures adds up to the total current obligations of about $53 trillion.

So which of these measures of debt is the "real debt"? As mentioned in my post of February 19th, the U.S. Budget tends to emphasize the debt held by the public, stating that "debt held by the public is a better gauge of the effect of the budget on the credit markets than gross Federal debt". Now this argument would seem to have merit in that the debt held by the public is the only debt that is offered directly to the credit markets. However, this does not mean that the debt held by the public is the "real debt". It tells us nothing about intergovernmental debt or other liabilities that are projected to come due in the near future. Hence, the gross federal debt may give a better indication (though an imperfect one) of our pending liabilities.

Since it includes intergovernmental debt, the gross federal debt does include the debt that is currently owed to the civil service, military, and veteran trust funds. However, it does not include any additional liabilities for civilian employees, the military, and veterans. On this count, the Net Position has an advantage. Also, as explained in my post of June 16th, the Net Position is accrual-based which some consider a better measure than the previously mentioned debts which are cash-based.

Still, the Net Position contains no information concerning liabilities for Social Security and Medicare. For this reason, one could argue that we need to add the $41 trillion figure for Social Insurance Exposures. This is the present value of future expenditures in excess of future revenue for the next 75 years as projected by the most recent Financial Report of the United States. A breakdown of this figure by program can be seen at this link. Adding this $41 gives the $53 trillion given by the aforementioned article.

One could argue that this figure is largely a projection, based on a number of assumptions for the next 75 years. One of those assumptions is that current law does not change. Suppose that we continue as we have in the past, occasionally modifying the law when a program's funding is in question (as with Social Security in 1982)? In this case, the $53 trillion figure may be more an indication that current law cannot survive than it is an indication of our future debt level. Still, this is something that we should arguably start planning for so that the changes will be as painless as possible. At the very least, it would seem helpful to project what the future liabilities of these programs will be if certain changes are made in the law at various points in time.

As far as which of these measures of debt is the "real debt", it seems to me that they all provide some information about our financial state. The smallest one, the debt held by the public, gives a very narrow but concrete view of the effect of the current debt on the credit markets and the largest one, the $53 trillion figure, gives an indication of the future debts we face if we continue to follow current law. Each successive debt from the smallest to the largest generally gives a less concrete but a more inclusive view of the debt. Hence, it seems that we have to consider them all. We need to deal with our current debt at the same time that we lay the framework, as much as possible, to deal with our other rapidly approaching debts.

Sunday, July 13, 2008

Job Growth Under Bush and Prior Presidents (through June 2008)

Note: The following blog entry has been updated at this link:

A March 16th New York Times editorial titled Through Bush-Colored Glasses alleged that Bush painted a false picture of the economy in a recent speech. Following is an excerpt:

Mr. Bush boasted about 52 consecutive months of job growth during his presidency. What matters is the magnitude of growth, not ticks on a calendar. The economic expansion under Mr. Bush — which it is safe to assume is now over — produced job growth of 4.2 percent. That is the worst performance over a business cycle since the government started keeping track in 1945.

I haven't calculated the job growth per business cycle but I have looked at the growth in employment over every presidential term since 1949. The following table shows the monthly average change in population, the labor force, employment according to the Household Survey, total nonfarm employment, and total private employment over every presidential term since 1949, along with the unemployment rate at the beginning of each term:


Monthly Average Change (in thousands)
-------------------------------------------- Unemploy-
Popu- Labor Househld Nonfarm Private No. of ment
President Mo Year lation Force Survey Employed Employed Months Rate
----------- --- ---- -------- -------- -------- -------- -------- -------- ---------
Roosevelt Jan 1941 154.6 117.4 48
Truman Jan 1945 57.8 65.3 48
" Jan 1949 63.9 55.6 71.4 114.0 95.2 48 4.3
Eisenhower Jan 1953 104.8 62.3 42.3 57.1 39.9 48 2.9
" Jan 1957 136.0 83.7 44.7 16.6 -3.1 48 4.2
Kennedy Jan 1961 156.1 65.0 87.9 122.9 94.3 48 6.6
Johnson Jan 1965 159.9 124.0 141.8 205.3 158.0 48 4.9
Nixon Jan 1969 258.3 165.9 132.4 128.8 97.9 48 3.4
Nixon/Ford Jan 1973 249.3 202.5 141.0 105.7 77.2 48 4.9
Carter Jan 1977 237.8 225.4 208.9 215.4 188.2 48 7.5
Reagan Jan 1981 172.5 139.6 132.2 110.9 111.4 48 7.5
" Jan 1985 172.1 180.5 216.8 224.6 194.6 48 7.3
G.H. Bush Jan 1989 173.3 104.4 49.3 54.0 30.5 48 5.4
Clinton Jan 1993 173.4 147.0 192.1 239.7 225.3 48 7.3
" Jan 1997 241.7 173.8 197.5 234.1 208.3 48 5.3
G.W. Bush Jan 2001 228.1 87.1 51.0 0.1 -18.8 48 4.2
" Jan 2005 214.4 156.3 138.2 126.0 108.5 41 5.2
Jun 2008 5.5

Following is a graphical representation of the above numbers:

Additional numbers and the sources can be found at http://www.econdataus.com/employ08.html. As explained in my post of March 16, one must be careful in comparing changes in employment using the Household Survey. This extends to changes in the population and labor force, also from the Household Survey. Still, the job growth of nonfarm and private jobs (from the Payroll Survey) in Bush's first term was the worst since at least 1941. Taking both of Bush's terms together (through June 2008), the average monthly growth in household survey, nonfarm, and private employment were 91.2, 58.1, and 39.9 thousand, respectively. For nonfarm and private employment, this was the second worst since Eisenhower with Bush's father's term being the worst.

The above graph and table show at least one other interesting fact. They show 15 presidential terms since 1949. In almost every term of a Democratic president, the growth in household survey, nonfarm, and private employment was greater than the growth in the labor force. Conversely, in almost every term of a Republican president, the growth in household survey, nonfarm, and private employment was less than the growth in the labor force. The only two exceptions in the 15 terms were Carter and Reagan's second term.

A related fact is that the unemployment rate went down during almost every term of a Democratic president and up during almost every term of a Republican president since 1949. This follows from the prior fact because the unemployment rate equals the unemployed (labor force minus the employed) divided by the labor force from the Household Survey. In any case, the only exceptions to this second fact was Carter (when the unemployment rate stayed about the same) and both terms of Reagan. Of course, the unemployment rate is doubtlessly affected by the majorities of both houses and many other facts. Still, this apparent relationship to the party of the current president would seem worthy of some additional study.

About Me

I became interested in U.S. budget and economic matters back in 1992, the first time that I remember the debt becoming a major issue in a presidential election. Along with this blog, I have a website on the subject at http://www.econdataus.com/budget.html. I have blogged further about my motivations for creating this blog and website at this link. Recently, I've been working on replicating studies such as the analysis at this link.

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