Deficits public and private

I posted this item on March 20, 2010 and expanded my comments on June 6, 2010.

I think the overall U.S. trade deficit is a more serious problem than the government revenue deficit. Our unemployment rate is worse than the world average, but our economic decline is not so bad.  You can click on highlighted words for the full CIA World Factbook lists or look below the fold for the basic figures.

The point of all this, it seems to me, is that these are all forms of deficit. If we as a nation import more than we export year after year, that is a deficit. If we fail to find jobs for our working-age population, that is a deficit.

A declining economy feeds into all the other deficits. If we had good economic growth, if we had a high-wage full-employment economy, all other problems would be relatively easy to deal with. But with a stagnant or declining economy, the other problems become intractable.

In terms of public debt as a percentage of national output (gross domestic product), the United States is not so bad. It ranks 66th out of 109 nations (lower rank is better in this case) and better than many other advanced nations.

Here are the relevant international comparisons:

China, 18.2 percent

United States, 39.7 percent

129-nation world average, 53.6 percent

United Kingdom, 68.5 percent

Canada, 72.3 percent

Germany, 77.2 percent

France, 79.7 percent

Japan, 192.1 percent (!!)

In terms of the balance of trade, however, the United States ranks dead last among 190 nations

Here are comparisons:

China, $296.2 billion surplus

Japan, $131.7 billion surplus

Germany, $109.7 billion surplus

European Union as a whole, $51.4 billion surplus

United Kingdom, $32.3 billion deficit

Canada, $36.3 billlion deficit

France, $43.6 billion deficit

United States, $380.1 billion deficit

The U.S. unemployment rate is a bit worse than the world average, according to the CIA World Factbook. Here are comparisons for the most recent available year.

China, 4.3 percent
Japan, 5.6 percent
United Kingdom, 8.0 percent
Germany, 8.2 percent
Canada, 8.5 percent
200-nation world average, 8.7 percent
European Union as a whole, 9.3 percent
United States, 9.4 percent
France, 9.7 percent

In comparisons of economic growth and decline, the United States fares better. Here are international comparisons of changes in gross domestic product for the most recent year.

China, 8.7 percent growth
France, 2.1 percent decline
Canada, 2.4 percent decline
United States, 2.4 percent decline
European Union as a whole, 4 percent decline
United Kingdom, 4.3 percent decline
Germany, 5 percent decline
Japan, 5.7 percent decline

These comparisons may not tell the whole story. Different countries report things in different ways. What the figures tell me is that we have to be concerned with the economy as a whole, and not just the governmental part of it.

One of the insights of the Reagan administration was that if it was possible to get good economic growth, then deficits would cease to matter, because they would be a shrinking part of the total national economy. Unfortunately this was not accomplished merely by cutting the marginal tax rates of the wealthiest taxpayers.

Going into debt is not always a bad thing.  It depends on what the money is being borrowed for. In the late 19th century, the United States had a trade deficit, but it was because foreigners were investing in the construction of railroads and factories which made us a more productive nation. Our current trade deficit is to finance current consumption which we should be able to pay for out of current income.

If my roof leaks, I need to fix it, even if I have to borrow money to do it, because if I let it go, the damage to my home will be greater than the cost of paying off the loan.

During the years leading up to Hurricane Katrina, there was a need to repair and upgrade the levees around New Orleans, but this was not done. The result was damage to property that was much greater than the cost of upgrade – and a loss of hundreds of human lives whose value cannot be measured in monetary terms.

Currently the United States is full of highways and bridges, water systems and sewer systems, harbors and airports, all in need of maintenance and upgrade. Even if we had to borrow to pay for this work, it is an investment we cannot afford not to make.

There are companies that try to stay in the black by means of continual downsizing and cutbacks. Sometimes downsizing and cutbacks are necessary, but no company – and no nation – ever downsized its way to prosperity. The only way to do that is to invest in the future.

P.S. (6/26/10)

Click on this for a map showing total debt in the largest national economies and links to charts breaking out levels of governmental, household, financial and non-financial debt in those countries.

Click on this for an up-to-date Wikipedia chart showing U.S. public debt. (added 7/12/10)

Click on this and this for an analysis of government deficits under President Obama vs. the younger President Bush. (added 7/13/10)

Click on this for a report on U.S. credit card debt and how it impedes the economic recovery. (added 7/13/10)

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