Measuring debt

Date posted: March 19, 2012

The national debt is a big issue, but people have different ways of looking at it. In fact, some people say the debt is going down even as the dollar value of it is going up. N.C. State University economist Mike Walden explains how this claim can be made.

“There are different ways of measuring the national debt. And let me bring this home and look at an individual situation. Let’s look at an individual household: How would we assess whether that household is going further into debt or not? Well, one way would simply to look at how many dollars of debt do they have. And if they’ve added dollars to their debt — that is, if they’ve gone, let’s say, from $100,000 worth of debt this year to $120,000 next year, you could argue, well, their debt has gone up.

“But, maybe that’s not the right way. Some economists and financial people would say a better measure would be to look at the … size of that debt relative to the individual’s overall income. Or another way of saying (that), look at the percentage of their income that’s devoted to debt. And a person could actually see their debt go up in dollar terms, but if their income went up also and actually went up faster, you could make the argument the relative size of their debt went down. And this is really what’s going on in this discussion of national debt.

“If you look at any of the projections over the next 10 years or so, we are going to have more dollar value of national debt. But there (are) some projections that say eventually we’re going to get to a situation where the economy, the national economy, is actually growing — adding dollars faster than the national debt is adding dollars. And in that case the percentage … of the economy that’s devoted to debt would go down.

“Again, this may sound very confusing. But I think if people think about it and think about, ‘Gee, how do you really measure debt? Is it a dollar amount? Or is it how much of that debt takes of your total income,’ then perhaps they can see how this can be transferrable to discussing the debt at the national level. “

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