TIME runs incoherent rant on U.S. debt as cover story

After a too-short hiatus, fear-mongering about the debt is back in a big way. TIME magazine is so worried that they’ve taken it upon themselves to not only put out an entire series to remind people that they must still fear the debt boogeyman, but have also allowed the headline story to center on long-debunked ramblings about the glories of the gold standard. There is so much wrong in the headline story that it would take a treatise to correct, but let’s just focus on a couple of easy things.

First: $13,903,107,629,266 (the size of the federal government’s debt)—that’s a big number. But context, one of many things lacking in this article, is also important. $18,164,800,000,000 is a larger number, and one that happens to be U.S. Gross Domestic Product (GDP). As was highlighted in our recent piece on Donald Trump, what matters is the size of public debt relative to the size of the economy. For further context, Greek debt at its recent peak was 175 percent of Greek GDP. That’s a level that the Congressional Budget Office baseline doesn’t even have the U.S. government hitting in three decades. And even Greek debt had to be combined with screaming policy incompetence among European Union policymakers to spark an economic crisis. Finally, if we believe that the confidence fairy may tolerate a couple of years of deficits but will come roaring back to punish us because of sustained debt levels, then it’s worth noting that Japan, where debt currently sits at 123 percent of GDP, has had a debt-to-GDP ratio of over 80 percent since 2004—with no signs yet of creditors fleeing.

Since the author of the TIME article, James Grant, is determined to analogize between government debt and personal debt, we should point out a couple of quick things. First, even for a person, a debt that is less than 80 percent of their annual income is far from ruinous. Lots of Americans would, for example, rejoice if their outstanding mortgage was less than 80 percent of their annual salary. Second, lots of people have debts—mortgages, auto loans, student loans—and yet have substantial net worth because they also own assets. Both of these insights apply to the government, maybe even more forcefully. For example, many people with mortgages less than 80 percent of their annual income would consider themselves in a good financial place. But people really do have to pay off their mortgage in full someday. Governments—entities that never die—don’t. So, the burden of an 80-percent-of-income debt is much, much less pressing to a government than a person. The government also owns assets. Lots of them. And these estimates of assets don’t even include the biggest one: the power to tax.

There are economically coherent arguments about why the United States should address projected future deficits before too long. They’re not hugely convincing to us, but they do exist. But they’re not in the new TIME magazine cover story.