The Wall Street Waltz: 90 Visual Perspectives, Illustrated Lessons From Financial Cycles and Trends, Revised and Updated Edition

Chart 74

In the Know, Or Heavily Snowed?

Despite all the political railing about deficit spending and the media-made hysteria over the burgeoning national debt, the truth is that there is no severe debt problem. While confused alarmists fondly point to our increasing debt level to support fears of impending doom, the more relevant relationship between the national debt and the ability to handle that debt (national income or GNP) reveals that the United States is no worse off now than 20 years ago—and far better off than 30 or 40 years ago.

As this chart shows, federal debt as a percentage of GNP has declined, with a few interruptions since the end of World War II. In 1945, the national debt of $252 billion exceeded GNP of $212 billion by almost 20 percent. By 1982 the national debt was about $1 trillion, which seems like a lot—but GNP had risen much more during the 37 years, to about $3 trillion. So, in the 35 years, the ratio had fallen from 120 percent to only about 33 percent. Contrary to all the doomsday babble, the debt burden has become lighter, not heavier.

It is true that this ratio has risen in the last few years after having reached an absolute bottom at about 25 percent in 1974. In fact, it has risen enough in the last decade to return the national debt-to-GNP ratio back up to where it was in the mid-1960s. So, if it keeps rising at recent rates, it may soon get back to its 1950s level. Would that be so bad? By most standards, the 1950s were pretty good. The trend is ...