Don't Worry About the Debt

by Dollars and Sense

A great exchange between LBO Talk's Doug Henwood and Brian Doherty of Reason Magazine on whether we should be worried about the national debt:

Why does Washington really need to pay down its overall debt? When does any nonhuman entity ever pay down its debt? Individuals do go through a life cycle of accumulating debts while young and reducing them with age (if circumstances cooperate, of course). But why should a corporation or especially a government, whose life spans are usually presumed to be infinite (not literally, but practically), ever pay down its debt? General Electric, one of the most solid of our large corporations despite recent wobbles, has a debt of almost $550 billion supported by annual revenues of $185 billion. GE's debt is equal to almost 300% of its revenues.

By contrast, the U.S. government's debt, "approaching" $11 trillion (actually, less than half of it is held by the public, but let's not quibble), is less than the country's GDP, which is more than $14 trillion -- a 78% ratio.

So by these measures, the government, which has considerable powers to tax as necessary, is in far better shape than GE, which can only hope that people will continue to buy its products. But you never hear anyone complaining about the unsustainability of GE's balance sheet. The worst you hear is that it might lose its prime credit rating sometime in the next few years.

Read the rest of Doug's comments, and Doherty's response, at the LA Times.

Labels: Doug Henwood, Left Business Observer, national debt

 

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12/19/2008 05:35:00 PM