Friday, May 15, 2009

National debt and pity

In a previous post, I quoted a standard figure for US national debt at about $11 trillion. Upon closer examination, I believe that this figure is grossly misleading. As shown on page 20 of the US Treasury's most recent financial statement, about $4.3 trillion of the national debt is "intragovernmental" debt, or money that the government owes itself.

The biggest example of intragovernmental debt is what the US treasury owes to the social security administration, which is part of the government. Social security (the government) earns more in social security taxes than it pays to seniors. This extra revenue is spent by the Treasury so that the government doesn't have to go further into debt. Indeed, thanks to these excess social security funds, the government is now only about $7 trillion in debt.

Saying that the government is an extra $4 trillion in debt is like me saying, "I'm thinking about buying a house for $100k. Instead of waiting until I get a loan for that purchase, I'm just going to tell all my friends that I'm already in debt $100k and hope that they have some pity on me in the meantime."

(Here, the house is a meta-for part of the social security benefits that the government expects to pay to seniors in the future. The government expects to make these payments, but has not yet taken out a loan to do it).

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