Why does this post exist?

I try to never comment on a Youtube video unless its a positive comment for a creator. There's literally no point in angrily replying to some random keyboard warrior about US economics on Youtube. Same with FOX News comments, and I guess really all social media. Most of the replies are just "me too" type responses anyway - piling on to some point of view which they have been hearing and repeating for so long they can't think of the problem differently anymore. This is, in fact, why I have my own website. Instead of smashing my fingers on the keys in anger of the moment, I can sit back and think about things a bit and respond to those folks in a more measured way. That these faceless folks may never see my responses hardly matters.

Rant beginneth

Todays rant is about the national debt. As we face yet another fiscal crisis where Congress has to vote whether or not to "raise the debt ceiling" (translation: allocate the funds to actually pay the bills for all the stuff they already voted to do) we get to rehash the same arguments again. The national debt is currently at an all time high of almost 31¹ trillion dollars², and the Youtube and FOX News commenters are all repeating the rallying cry about how the debt is "too high" and we need to immediately stop paying for all government programs to bring it down immediately or face catastrophe; Its all the fault of these "for profit" politicians who somehow make out personally by keeping the debt at incredible levels; Everyone is paying too much for everything because "the debt"; Everyone else has to balance the books, so should the government!

We have to balance our books so should they!

This last argument is the most salient, but does it hold up? The median household income in the US is somewhere between $70K³ and $90K⁴. The median and the average are different things but the average household income is only slightly higher at about $100K boosted by a relatively small number of very rich households.⁵ The average number of people per household in the US in 2022 was 2.5 ⁶ and since there are about 340M people in the US thats about 136M households, so I estimate that household income is about $11T yearly.

There are all kinds of debt, and citizens take on debt for different reasons, but debt isn't necessarily a bad thing. Some of the biggest sources of debt for households are housing, transportation, and education. In the case of housing, people are trying to build equity over time; they take on debt for a vehicle to get to and from jobs they might not be able to do otherwise in pursuit of greater income; and they take on debt at school to educate themselves to better their job prospects. It seems obvious that a lot of our debt is incurred in order to better our financial situation in life over a longer term than a single year.

The median debt per household is more difficult to determine, but we know that Americans as a whole are carrying about $17T in debt year over year recently⁷ so using our 136M households estimate again thats about $125K in debt per household on average. Thats roughly a 1.5 debt-to-income ratio.

As a double check, on the Federal Reserve "Debt to Income Ratio" page⁸ we see ratios as low as 0.5 in NY (which seems to be an outlier) to 1.1 across much of the midwest to as high as 2.0 in parts of the west and the south. Apparently in the pursuit of building long term financial security, maintaining a debt that is as much as 2 times our yearly income is acceptable to most Americans.

If we scale this up to a national level, we might use the GDP (Gross Domestic Product) as an indicator of our combined national financial output.

GDP stands for Gross Domestic Product. It refers to the market value of all goods and services produced within an economy in a given period of time. Equivalently, GDP also refers to the total income earned by each household, company, and government within a given period of time. Therefore, GDP measures the flow of personal income and output in an economy.⁹

Apparently we are the same

The GDP of the US in 2022 was about $25T¹⁰ While there is no guarantee that the GDP will remain at this level and there are certainly indicators that it may drop sometime soon, the national debt¹ of $31T² produces a 1.25 debt to income ratio which, as we've seen above, most Americans consider an acceptable level for their own personal finances.

That said, the debt to GDP ratio is definitely much higher than it has been in my lifetime and I would like to see it reduced. The way to do this, as in our own personal finances, is to start paying it down. Paying down the national debt has been done in the past, probably most famously under Clinton¹¹, but it is politically difficult because the way we do this at a national level it is to raise taxes which is universally unpopular. There is a good argument to be made that we're only in this situation now because of financially imprudent decisions by Bush and Trump to reduce taxes in exchange for short term political capital.¹²

quick aside: Why is there a debt ceiling at all?

The whole reason there is a "Debt Ceiling" is as a consequence of the Liberty Bond Acts of 1917¹³ which set limits on what the Federal Reserve could borrow to pay for the US involvement in what we now call the "First World War" in Europe. The first act was called what it really was, an "Emergency Loan", but they pretty quickly realized they needed to spin it better than that and the subsequent rounds of borrowing were relabled as "Liberty Bonds" and "Victory Liberty Loans". Americans were marketed to and guilted into participating in the war effort by buying bonds to pay for it. It might also interest you that the US eventually defaulted on these bonds, which were supposed to be payable in gold, in 1934 and the Supreme Court ruled that the government's refusal to pay up in gold was unconstitutional. Roosevelt's Executive Order 6102¹⁴ entirely eliminated the open gold market which confused the issue so badly that the court held that full re-payment in dollars would unfairly enrich the bond holders. So Congress had established a debt ceiling because they were worried about borrowing too much money backed in gold to pay for a war from the people who were sending their sons and daughters to fight it but then a president 20 years later decides that you're not allowed to own gold at all so we can only pay you back about half value in paper instead. It sort of makes you wonder if we should trust the government to borrow anything at all, doesn't it?

tldr;

tldr; The national debt to GDP ratio is currently at a level that most Americans appear to find acceptable for their personal finances. As an interesting aside, the debt ceiling was originally set up to ensure the government could not borrow too much money from the people that the government ultimately would refuse to pay back.