The Skeptical Optimist

The USA's debt burden, according to the TIT Ratio

 
Because of the growing hysteria over the growing federal debt, I've decided it's time to introduce a new, objective measure for our debt burden — or, more accurately, for our federal government's ability to afford the federal debt. [Believe it or not, it's more affordable today than it was ten years ago.]

The publicly-held debt has been increasing rapidly because of recent actions by the Treasury and the Federal Reserve, and it will continue to increase rapidly until we get our economy moving again. The question is this: Can we afford all this debt, on top of the debt we already had on the books?

Well, that begs the question, How should we measure "debt affordability"—also known as "creditworthiness"? Few of the hysterical debt-phobes ever seem willing to answer that important question. Although ex-Comptroller General David Walker offered a ray of hope by touching briefly on the debt/GDP ratio in his doomsday movie, IOUSA (see my review here), my hopes were dashed when he devoted most of his film to the more sensational debt numbers ending in lots of zeroes. Too bad, but that's symptomatic of debt phobes — especially those who'd rather peddle fear, for personal or political gain, than solutions for aggregate economic gain.

Anyway, I think I've come up with a simple little number that could help steer the conversation away from hysteria, back towards objectivity: I call it the "TIT Ratio," which stands for "Times Interest Taxed." (I mentioned it at the end of my review of Walker's IOUSA movie.) It's simply the number of times our federal tax receipts covered the interest obligations on the publicly-held federal debt.

I like it a lot better than the debt/GDP ratio because it's more to the point. In debt/GDP, debt (a "stock") is just a crude proxy for interest payments because it ignores the interest rate, and GDP (a "flow") is just a proxy for tax receipts. In contrast, the TIT Ratio is a coverage ratio that directly measures interest payments and tax receipts (both "flows"), and it's more timely. It's similar in concept to "Times Interest Earned" used in private sector finance as one gauge of a firm's creditworthiness. Here's a chart of the USA's TIT Ratio since 1998. [I plan to take it back to at least 1980, if I can get the Treasury folks to point me to their older reports.]

Click to enlarge:

[source: Monthly Treasury Statement]

Notice that our current ability to afford the federal debt is better than it was at the end of 2000 — even though we've been adding debt at a fast pace recently. (Reasons: our economy has grown, and the interest rates have dropped.) The good news today: we have lots of room to borrow because there are plenty of investors willing to buy Treasury securities at low interest rates (near-zero rates, in fact). The bad news: nobody should interpret that to mean we have infinite borrowing capacity (as opposed to merely a comfortable cushion with no near-term limit in sight).

Federal debt: the principal, the interest, and the market
Keep in mind that (1) we'll never, ever have to pay back any of the principal on the debt if we just keep rolling it over (see this article); (2) the interest is the "debt service" we must never, ever, ever, ever default on; and (3) maintaining our status as the large, reliable, predictable borrower supporting the large, liquid, worldwide market for US Treasury securities should always be one of our top financial priorities. To maintain the bond-buying public's confidence that we'll always be able to afford to pay them their interest in stable-value dollars, and to roll the debt over into a large market full of willing buyers, the proceeds from the taxing power of the federal government must comfortably cover our interest obligations. Hence the TIT Ratio.

Growing the economy
Federal tax receipts grow when the economy grows, even when tax rates do not change at all. That's why "growing the economy" is so important for our future, and why getting it back on track is so much more important than worrying about short-term increases in the debt level. [Along those lines, I'm glad to hear Obama and his team now giving "growing the economy" a lot more emphasis than increasing anyone's tax rates; tax hikes for the rich now appears to have been merely tax talk for the votes—at least until 2010. I find that very encouraging.]

So far, the USA's declining TIT Ratio is saying that the debt we've added, in spite of the ratio's downward slope, is more easily affordable today than our debt level was a decade ago. [That's worth repeating: "The debt level is more affordable today than a decade ago." Try to think of anywhere else you've heard that besides this blog.] We should expect the decline to continue for months, but we should patiently understand that it's necessary to get the economy back on the growth track, and that it's therefore not yet cause for alarm, let alone doomsday talk.

In short, it's a level-headed, objective measure. For me, that's a nice respite from the caterwauling of the hysteria peddlers.

[I'll begin publishing the TIT chart once a month, soon after the Monthly Treasury Statement is available. Also, it's safe to assume that, for now, a bigger TIT is a better TIT, but don't forget that too much of a good thing is bad, not good. If the TIT ratio approached infinity, as it would if we eliminated the debt, we would be grossly underleveraged, and would be stifling economic growth.] 

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Last and possibly least...

Two years ago, I posted the graphic below in an article I wrote responding to the fear peddlers' road show. [You'll get the joke if you saw the movie Bill and Ted's Bogus Journey; if you missed it, that's too bad, because it was one of Keanu Reeves' finest performances.]

Anyway, David Walker and the Concord folks never gave me any feedback on it, so I guess they didn't think it was funny.

Here's the Bill & Ted graphic, just for fun.

Debt Clock craziness

I get a nontrivial amount of traffic these days from debt-clock watchers, so it's time for a reminder regarding how it's maintained here. Because of our current once-per-century upheaval in the financial sector, there's a half-trillion dollar difference in the debt numbers reported in two different places at the US Treasury's website.

Here's the comparison, both from the US Treasury website as of the morning of Nov. 11, 2008:

This page estimates the day-by-day debt balances; the balance for 10/30/08, the latest day available, was estimated to be as follows ("mm" = million$):

10530.9 mm Total
 6257.6 mm Publicly held

This page, on the other hand, is the source for the Treasury's official monthly report; the September report reads as follows:

10024.7 mm Total
 5808.7 mm Publicly held

I calibrate the clock (at right) once per month, using the official report. I also estimate the daily growth of both debt and GDP based on recent trends from monthly reports. Because those numbers and trends become ancient history very quickly in today's environment, we can expect some crazy-looking numbers as the government sells huge quantities of Treasury securities, then subsequently buys many (or all) of them back as the TARP program plays itself out. 

My assessment of our federal debt situation
GDP is shrinking, debt is growing; consequently, the ratio of debt/GDP is growing more rapidly than we've seen in a while. Am I worried that we now have "too much" federal debt? No, not yet. Reason: the debt level per se will not hurt us; what would hurt is a significant increase in interest rates on Treasury securities, a jump in inflation, and a tanking dollar relative to other key currencies. But in the last several weeks, interest rates have dropped, we've had deflation instead of inflation, and the dollar has jumped in value. In short, the buyers of T-bonds and US dollars have been expressing confidence in the future of those instruments relative to their other choices, and therefore confidence in our creditworthiness. We have plenty of "borrowing capacity" as long as those conditions hold.

That's the good news. The concern is that we will soon be taking huge bites out of that "borrowing capacity" if next year's fiscal deficit comes to a trillion dollars, and if the TARP program ends up leaving an unexpected amount of new debt on the books instead of nearly breaking even.  Will those bites cause high interest rates, high inflation, or a falling dollar? Time will tell.

The only certainty is that a strong, growing economy in the long run is the only way out. It is folly to place a higher priority on "reducing the debt" or "reducing spending" than on growing the economy. The raw dollar level of debt is infinitely less important than an economy sizable enough to sustain any given level of debt. (Would you feel comfortable with $100 trillion federal debt in a $200 trillion economy? I would.)

Once again: growth is the key. I've been saying that for four years here. But these days, it should be obvious that to get back onto the growth track, we'll need to stop the bleeding first (i.e., the shrinking GDP). While we're doing that, it's nice to know that we apparently have a substantial amount of "borrowing capacity" to fall back on, isn't it?

Glenn Beck falls for the fiscal doomsday message...

...without challenging much of anything.  [Link to Beck's videos]

That's really too bad.  The peddlers of the fiscal doomsday message have found a lapdog. Beck's interviews reminded me of the way Olberman interviewed Obama, or the way Hannity interviewed Palin. Hard-nosed journalism is supposed to ferret out the truth, but what I'm seeing these days looks more like slow-pitch softball.

Is it possible that Glenn Beck simply does not know the questions he should be asking?  If ignorance is the problem, that's good news to me — because ignorance is fixable. 

I've written many times here about what's missing from the debate: GDP growth.  Without enough of it, doomsday is our destiny; with enough, easy street is possible; somewhere in between is probably more likely.  But all we ever hear about is doomsday — and Glenn Beck has bought it, hook, line, and sinker, no questions asked.

So, instead of another lengthy explanation of why doomsday might not be inevitable, I'll simply attempt to spoon feed five yes-no questions for the Glenn Becks in the media to pass along to the doomsday crowd.  In my mind's eye, I'm picturing the (highly unlikely) scenario of Glenn Beck asking ex-Comptroller General David Walker to answer each of the following five questions with a simple yes or no, followed by any elaboration he deemed necessary:

Question 1

Mr. Walker, you talk repeatedly of the $53 trillion shortfall in assets versus liabilities on America's balance sheet. But with regard to our nation's assets, is the following statement still accurate? It's by former Treasury Secretary Robert Rubin, excerpted from page 8 of the 1998 Financial Report of the US Government, signed by both you and Secretary Rubin:

The assets presented on the Balance Sheet are not a comprehensive list of Federal resources. For example, the U.S. Government's most important financial resource, its ability to tax and regulate commerce, cannot be quantified and is not reflected. [And that's not the only asset left out...]
—Secretary Robert Rubin, 1998 FRUSG

Question 2

On page 8 of that same report, Secretary Rubin also said this:

The expanding economy [i.e., growing GDP] over the course of the year brought a surge in tax revenue in 1998...

Mr. Walker, do you agree that, as in 1998, a faster-expanding economy would cause future tax receipts to rise faster, even if tax rates remain unchanged?

Question 3

Mr. Walker, you've said we won't "grow our way out of the problem." But given the overwhelming effect that GDP growth has had on tax receipts in the past, do you honestly think economic growth deserves only a terse dismissal — instead of a more detailed explanation? 

Question 4

Mr. Walker, below is an important chart from page 16 of the 2003 Financial Report of the US Government, signed by you. The chart is important because GDP growth rates drive tax receipts, as Secretary Rubin explained above.

Would you please furnish us with an update of this same chart, extended out 75 years into the future? That would allow us to compare the GDP growth we have experienced in the recent past with growth assumptions you are using in your widely publicized forecasts for the long term future.

Question 5

Mr. Walker, you projected that we will eventually run our debt/GDP ratio far beyond our post WW2 high of 100+ percent. Would you agree that keeping the ratio of debt to GDP at approximately today's level (64%) would require an economy that grows at the same rate as the debt, but would not require a balanced budget — and would you therefore be willing to define the much ballyhooed term "fiscal responsibility" as "the condition achieved when the debt grows no faster than the economy"?

Try to picture Glenn Beck asking those questions. I know, it's bizarre; but I keep trying to picture it anyway.

YouTube: Food for thought about the national debt

Eureka. This guy thinks a lot like I do, and just might get a few others thinking a little harder during this campaign season.

It's mostly facts, plus one hypothetical to illustrate the point. (The hypothetical: "What if we saved up $6 trillion cash out of our disposable incomes in order to retire all the debt?").

Next time, this guy should use a brighter light and larger fonts, but that's just a nitpick. 

Here it is:
National debt food for thought.


ps- Looks like you have to watch it in "high quality" -- I couldn't get it to come up in "standard quality."  Also, be sure "annotations" are turned on. (Thanks for the heads up, Andy.)

Movie review of I.O.U.S.A.: TIT for tat.

[The relevance of the mountains will become clear near the end of this article.]

Two nights ago, I sat through the new doomsday movie, I.O.U.S.A., starring David Walker, former Comptroller General of the USA, and Robert Bixby of the Concord Coalition, both deeply committed to their Fiscal Wake-Up Tour, now in progress.  I.O.U.S.A. is a documentary about what’s wrong with the USA. This review is about what, in my judgment, is wrong with I.O.U.S.A.

In the theater, I was (a) one of nine people watching, but (b) the only one taking notes. Halfway through, I started thinking to myself. . .

...why on earth did I pick economics as a hobby; I must have a screw loose. I paid $8.50 for an 85-minute lesson on single-entry accounting—a “skill” that became obsolete five hundred years ago.  Instead, for a mere two bucks extra, I could have sent Mr. Walker a copy of this book (...not that it would have done any good; sounds like he’s committed to his doomsday message).

What’s wrong with the USA, according to I.O.U.S.A.
The movie’s message, in a nutshell, is as follows:

The USA is financially doomed. We are borrowing money like drunken, gambling-addicted sailors, and we’re about to die with our markers out. Our fiscal deficits are ballooning the federal debt, our central bank is printing Monopoly money, our live-for-today citizens aren’t saving enough, and our trade deficit is handing our assets over to the Chinese. Okay, okay, it’s not really an acute problem now; it’s where we’re going that’s the real problem.

Oh, and those of us in the Fiscal Wake-Up Tour don’t have any specific proposals for fixing the problems we describe. Sure, we know in general that taxes are too low, we’re importing too much, we’re saving too little, and will soon be spending too much on Social Security and Medicare—we know all that in a broad, general sense—but we mainly just wanted you to know how hopeless the nation’s finances are, wanted you to see all those big numbers with lots of zeroes, and wanted you to understand that our politicians aren’t even close to doing anything about it. Just so you know.

Believe it or not, Robert Bixby at one point said that was not a doomsday message. Hmm.

What’s wrong with I.O.U.S.A.
Concord’s Robert Bixby said,

“There are two ways to balance the budget: cut spending or raise taxes.”

There are two things wrong with that statement, never addressed in the movie: (1) it is not necessary to balance the budget, ever, in a growing economy; it is only necessary to manage the size of the annual deficit; and (2) there are two ways to raise taxes, not just the painful way of raising tax rates.

The “secret” solution, not addressed in the movie, is growth—economic growth. Think about this: Would you switch to a new job that would pay you more, and enable you to be more productive in the field you love? If so, that’s “economic growth” at the individual level. Scale that up to fifty or a hundred million job holders over a period of time, and that’s huge “economic growth” for the nation. Growth requires continual formation of new, better jobs, plus a government that fosters (or at least doesn’t get in the way of) the process of new job creation.

Why was growth not mentioned in the movie? If the economy (GDP) grows at the same rate the debt grows, the ratio of debt/GDP stays constant. That means we can run deficits for as long as we can grow the economy. And by the way, David Walker apparently thinks the debt/GDP ratio is important; he had it charted at the beginning and end of the movie. Unfortunately, not only did he say nothing about how growth would affect his chart, he abandoned the ratio for the balance of the movie, in favor of big dollar numbers that had lots of trailing zeroes. To me, those weren’t scary, they were yawners.

To his credit, Walker did project the debt/GDP ratio several decades into the future: he says it will be 244% in 2040, double the 120% peak we experienced after WW2. I sure wish he had revealed the annual growth rate assumption behind that number, but he didn’t.  I’m guessing his economic model assumed 3.0% annual growth, give or take a half-point—which I consider to be a low-ball assumption.

What I’d like to see is Walker’s result for 2040, on the outside chance that Ray Kurzweil’s prediction about growth comes true (which I consider to be a bit too optimistic, but what do I know); Kurzweil said this:

We won’t experience one hundred years of technological advance in the twenty-first century; we will witness on the order of twenty thousand years of progress [at today’s rate of progress], or about one thousand times greater than what was achieved in the twentieth century.

...and this:

Before the middle of this [the 21st] century, the growth rates of our technology... will be so steep as to appear essentially vertical.  From a strictly mathematical perspective, the growth rates will still be finite but so extreme that the changes they bring about will appear to rupture the fabric of human history.

What would Mr. Walker’s doomsday model say about 2040 if Kurzweil’s growth prediction is directionally correct? A well-known economist, Arnold Kling, had this to say:

If Kurzweil is correct, then the mountain of debt that we fear we are accumulating now will seem like a molehill by 2040. We will pay off this debt the way someone who wins a million-dollar lottery pays off a car loan.

Another well-know economist, Paul Romer, confirmed the importance of growth:

By itself, faster growth could resolve all of the budget difficulties associated with the aging of the Baby Boom generation, and still leave ample resources for dealing with any number of other pressing social problems.

A second way to “raise taxes”
Back to the second half of Bixby’s platitude about cutting spending or raising taxes: Guess what happens to the amount of taxes you pay if you get that new job with that big raise.  Right: you pay more taxes—even if our politicians didn’t increase your tax rate. Economic growth means more take home pay for you, and more tax revenue for the federal government. 

Growth sure solves a lot of problems, doesn’t it? Growth is very, very important to our future. Why was it completely ignored in the I.O.U.S.A. movie?

Servicing the debt
Next, here’s one thing that was not ignored by the movie, and it’s important. Former Treasury Secretary Paul O’Neil said it, and he is absolutely correct:

If you can’t service your debt, you’re finished.

So, how can we gauge an entity’s ability to service its debt? One popular indicator for businesses is a ratio called “Times Interest Earned” (T.I.E.), which indicates how many times a company’s earnings would have covered its interest obligations (debt service). The T.I.E. ratio can be too low, indicating that the debt burden may be too high, and it can also be too high, indicating that its lack of leverage may be causing missed opportunities. 

Failing to meet these [interest] obligations could force a company into bankruptcy . . . [but a] high ratio can indicate that a company has an undesirable lack of debt or is paying down too much debt with earnings that could be used for other projects.

Is the USA becoming less able to service its debt? That's what one would think based on messages like the one I.O.U.S.A. is delivering, wouldn't one? Well, let’s try a ratio that’s roughly similar to T.I.E., and let’s (just for grins) call it “Times Interest Taxed”—that is, the number of times federal tax receipts would cover net interest obligations. I ran the numbers; back in the mid-1990s, the federal T.I.T. ratio was 6.5; that is, tax receipts covered net interest obligations 6.5 times. Most recently, the USA’s T.I.T. ratio (Aug’07-Jul’08) was 10.4; that’s a 60% increase in our ability to service our debt, in one decade.  These days, the number is bigger.  C'mon guys, isn't that supposed to be GOOD news?

I wonder if anything like this came up at the big, Bernanke-and-friends financial conference last week in Jackson Hole, nestled comfortably in the valley beneath the beautiful Grand Tetons?

Anyway, here’s my main problem with I.O.U.S.A.: Why didn’t growth, or our improving ability to service our debt, get any mention in the movie? (If I were cynical, I might think the movie is more televangelism for a new religion and its leaders than anything else; but I’m an optimist, so I’ll just chalk it up to an oversight by the writers.) This movie can’t really be in the running for an Academy Award . . . can it?

JFK’s amputated message
One last observation. I.O.U.S.A. quoted one sentence from John F. Kennedy as he gave his 1962 State of the Union Address:

[A] stronger nation and economy require more than a balanced Budget.

At that instant, the film editors cut him off. I wondered why. Then I went home and looked up JFK's next sentence:

They require progress in those programs that spur our growth and fortify our strength.

Right! Growth and national security are important, too! What we get for the money we spend is at least as important as the money! But mentioning growth and national security might dilute the financial doomsday message, might it not? I wonder if that’s why they cut him off? Hmm. For now, I’ll assume not, because I’m an optimist.

Two myths: Paying off family mortgages, and paying off the national debt

Families have to pay off their mortgages; why is the national debt any different? And besides, why compare debt (or deficits) to GDP instead of tax receipts?

I could hammer away at the answer to those and similar questions for as long as I decide it might do some good to keep hammering away at them. So far, I’ve racked up eleven years doing it. I’ve also made several new friends, which is good, and an enemy or two, which is immaterial for now.

I’ve noticed that the objections to debt and deficits tend to come mostly from supporters of the party that does not occupy the White House. In 1995, Gingrich and friends tried to shut the government down to embarrass Clinton over the debt issue. (In the process, they shot themselves in the foot; it was a well-deserved wound). A few years later, the White House changed hands, and now it’s the other ideological camp peddling the fear that exceeding the debt ceiling will doom our grandkids to debtors prison.

Shouldn’t recent history be a big clue that maybe, just maybe, national debt fear-peddling is driven more by politics than by economics?

Will a “debt burden” of 40% (publicly-held debt %GDP) bankrupt our grandkids? How about 80%, or 120%? Oops, wait a minute, 120% debt is what my grandparents’ generation bequeathed to their future grandkids in 1946. Well, I became one of those grandkids, and here we are sixty years later: not only has the debt failed to eat us alive, but we’ve run it back down to 40% of GDP—not because we reduced the debt, but because we grew the economy.

That doesn’t faze the ideologues, though. Count on them to surface and become obnoxiously vocal about deficits and the debt, just as soon as their party loses control of the White House. They remain perennially fond of showing us hockey-stick charts of debt rocketing skyward—keeping carefully hidden the hockey-stick charts showing our economy rocketing skyward at a similar pace. And of course, it’s all the president’s fault. Debt is always “inherited” from the previous party; surpluses are always “squandered” by the subsequent party. Polarization is what politics has been all about, and politics is what the deficit/debt debate has been all about. It won’t change any time soon.

Families pay off their mortgages, don’t they?
No, as a matter of fact, they don’t.  My family’s outstanding mortgage balance, starting back in 1925 when my grandfather borrowed money for his first house, has done nothing but grow, grow, grow. That’s eighty-three years of family mortgage debt that’s done nothing but grow. But guess what else grew: the family did, and so did the aggregate family income, and consequently, so did the family’s aggregate ability to carry mortgage debt. As one generation finished paying off their mortgages, the bankers kept rolling their loans over to the next generation of home buyers, who were more numerous and had larger incomes than the previous generation of borrowers.

Bottom line: No, the typical family has most definitely not been paying off its mortgages; it's a false analogy.  The typical family has been growing its aggregate income, assets, and mortgage debt.  But the false analogy makes plenty of political hay, doesn’t it?

Why debt-to-GDP, instead of some other comparison?
I agree; I think there’s a better indicator that’s more to the point. Unfortunately for me, economists worldwide, on all points of the ideological spectrum, are virtually unanimous that the ratios of debt- and deficit-to-GDP are the key, cross-country indicators of nations' debt loads. Several economists have confirmed it to me personally, and the European Union has used it in their treaties to help constrain member nations’ economic policies. Debt-to-GDP is here to stay.

Too bad. I think the portion of tax receipts it takes to pay the net interest (interest on publicly-held debt) is more to the point. It’s affected not only by the size of the debt and the size of the economy, but also by interest rates. In the last ten years it has dropped from 15% to its current level of 10%. I think it’s more to the point, but economists have been using debt/GDP as their preferred indicator.  That’s why I’ll keep using debt/GDP; the numerator is a reasonable proxy for interest payments, as the denominator is for tax receipts, so it works for economics discussions.

Unfortunately, most discussions about the deficit and debt are political, not economic.  Any ideologue who makes the mistake of talking about the federal debt as a ratio that does not scare the audience (40% of GDP)—instead of a big number that does ($9 trillion)—becomes at best a duck out of water, if not a laughingstock. She would deserve a big fat 'F' in Spin 101. That’s why debt/GDP and deficit/GDP won’t become part of the political vocabulary for a long time.

Count on the talking points of the White House wannabees sticking with debt ceilings and debt dollars for the indefinite future (…and it won’t matter which party is the wannabees). And count on the public at large properly ignoring such political theater every time it happens.

Too bad; a debt ceiling of, say, "80% GDP" could spark the substantive debate we’ve needed for a long time.

==============
End note:
This was lifted from the comments. Grodge asked some good questions, and I decided to answer them up here instead of down there.

Deficit and Debt Burden Watch, March 2008

No balanced budget in sight yet, but the deficit (1.5% GDP) is low enough to keep the debt ratio essentially in balance (debt ratio = debt/GDP). 

Nothing from any of the candidates about that, of course, because during an election year, dollars of debt accumulated by the "bad guys" is always the headliner.  Nothing about our ability to service debt, nothing about the size of the economy, nothing about debt incurred by the government being the same thing as credit extended by the lenders—just dollars of debt.  Single-entry accounting, in other words.  It's financial nonsense, but the scare factor nonetheless makes it a political goldmine. 

I suppose it's time for some election-conscious journalist to calculate which planet all those debt dollars would stretch to if they were laid end-to-end.  Probably Jupiter or so.  (Good thing our GDP would stretch way beyond that—to Saturn or so—isn't it?)

In any case, the burden of the debt is still one-third lower than it was in the mid-1990s (burden = percentage of tax receipts it takes to pay the interest).  Below are the charts; click to enlarge.

The two biggest myths in American conventional wisdom

Myth #2
Don't you wish all of the water we drink could be of the same pristine purity as the crystal clear, refreshing water of our Rocky Mountain streams and lakes?  Almost everybody does . . .

. . . and that included me, up until one summer twenty years ago when my family spent a week vacationing in Rocky Mountain National Park.  The beginning of that week was when I promptly changed my mind about the desirability of drinking crystal clear Rocky Mountain water.  Reason: First thing the ranger told us, in no uncertain terms, was, "Please, do NOT drink any water from the streams and lakes.  Imagine for a minute what the bears, beavers, and moose are doing in the water upstream from here." 

The national park folks have been kind enough to repeat that warning on their web page, under the heading "Hazards":

Giardiasis ["beaver fever"] is a debilitating intestinal disorder, caused by drinking contaminated water, that you will want to avoid. Do not assume that stream and lake waters are safe to drink.

The "pristine purity" of Rocky Mountain water is the second biggest myth in American conventional wisdom. 

Myth #1
The biggest myth of all, however, is in first place by a wide, wide margin.  It was repeated last night by the President of the United States, George W. Bush, in his 2008 State of the Union Address:

American families have to balance their budgets.  So should the government.

Bipartisan applause broke out.  Even Vice President Cheney—Mr. Deficits Don't Matter—was applauding along with Speaker Pelosi. 

It's a powerful idea, but it's a myth.  One to which both parties feign allegiance.

The false idea that federal deficits are bad (and surpluses are good) seems to be an immovable object.  I've been trying to chip away at that dangerous myth for three years here, but the dogma is so engrained, and so easy to exploit for applause at political events (either side's), I'm starting to wonder if anything can ever dislodge the falsehood.  Maybe not. 

The federal government will run out of excuses for not balancing its budget—as soon as General Electric and Wal-Mart stop using a mixture of growing debt and growing equity to fund their growth—and as soon as the Smith, Jones, and Rodriquez families (all generations, moving through time) stop accumulating growing debt for houses, car loans, and family businesses even as their total family incomes continue to grow.  When everybody else stops borrowing, the federal government will be out of "excuses."  [Don't hold your breath waiting for that day to arrive, however.] 

Never mind that I could support a budget goal of holding the debt/GDP ratio steady—which means the debt can grow up to the same rate the economy grows, without violating the goal.  Never mind that the goal of steady debt/GDP would itself become a big challenge soon, due to demographic shifts.  Never mind that it would be far more realistic and achievable than the sophomoric sophistry of insisting on a balanced dollar budget.  A growing economy is what we need, far more urgently than a balanced dollar budget.  It's not the money, it's what we get for the money, and it's the real wealth we create that backs up the money we print. 

But apparently, few voters want to understand it—and politicians would much rather demagogue it than explain it.  (Those who do understand it, such as Mr. Deficits-Don't-Matter Cheney, immediately get their heads bitten off by those who don't understand it, and by those who know how to play false dogma for political gain.  No wonder those who understand it tend to back off; it's just human nature.  When you get struck by lightning two or three times, you tend to get off the hill.) 

Myth #1 is still the all-time champion political falsehood—way, way ahead of "pristine" Rocky Mountain water.  Just ask President Bush.  Just ask any presidential candidate still in the running, on either side.  In fact, Myth #1 is a good bet to outlive the cockroach, which has been around for 350 million years. 

Why so much fuss over the national debt? (A generic letter to the editor)

[Note: Please don't miss the end note to this article.]

False alarms about the national debt still flood the editorial pages, blogs, and candidates' press releases.  For hundreds of examples just in the past week, follow this link to Google news. 

Yesterday, while wishing I had more time to submit responses, I thought, Why not recruit some help from this blog's readers?  So, if you agree with the underlying message at this blog (i.e., that a managed level of debt can be harmless, even desirable, in a growing economy), and you'd like to help inject some sanity into the debate this year, here's the deal: Copy the two generic letters to the editor (below) to a convenient place on your computer; then, whenever you spot someone whining about the debt while ignoring our growing ability to service the debt, submit a response by using either the short or the long version below, whichever you think is more appropriate. 

Letter to the editor, short version:

I read [name of whiner goes here]'s sob story about the size of our national debt, and wondered why there was, as usual, no mention of our nation's growing ability to service the debt.  Yes, our debt is $9 trillion and growing . . . but our economy is $14 trillion, and has been growing faster than the debt.  Result: Just as the burden of my car payment decreases whenever I get a raise, the burden of our national debt decreases whenever the economy grows faster than the debt.  Why don't we ever hear that side of the story from the fear mongers? 

How about less whining about the debt, and more ideas about how to enhance economic growth, which improves our ability to service the debt? 

Letter to the editor, longer version:

[Name of whiner goes here]'s sob story about our $9 trillion national debt leaves out some very important information: Our national economy is $14 trillion, and it has been growing faster than the debt.  Guess what: That means our ability to service the debt has been improving. 

Think the interest on the debt is a problem?  Well, in the mid-1990s, it took around 15% of federal tax receipts to pay the net interest on the debt; but now, it only takes 9%.  That's a 40% reduction in the debt "burden" in a dozen years.  Again, our ability to service the debt has been improving. 

Think it would be a problem for future generations if, instead of paying down the debt, we allowed it to keep growing at a rate of, say, 2% every year, year in and year out?  Well, if our economy and our federal tax receipts grew at a rate of, say, 3% every year, our debt "burden" would decrease, year in and year out.  Future generations would be better off than we are, in spite of the debt growth. 

So instead of stirring up fear about the negative side (the debt), why don't we start giving at least equal time to the positive side: a growing economy?  That's the best antidote to a growing debt level. 

I, for one, have heard enough whining about the debt and the interest payments.  Does anyone have any ideas about how to enhance economic growth?  If so, let's hear them.  Steve Forbes said it succinctly:

You can't cut your way to prosperity; you've got to grow the economy.

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Important end note: 

A happy, healthy, and prosperous new year to all of you.  Thanks for spending a little time here. 

FQ.07.50: Favorite Quote for This Week

We should tax the private sector sufficiently to free the resources that we find desirable for the government to command, but no more than that.  This is likely to entail a stable debt/GDP ratio in a growing economy.
—Robert Eisner, The Misunderstood Economy