Historical National Debt Redux

Following up on this post, I ran down some more comprehensive stats on the public debt; it turns out OMB’s data stretches back to 1940.

Figure 1:  Federal Debt as % of GDP, 1940-2008

Historical Publicly-Held Debt3

Notes:  “Intra-Gov” = sum of “Held by Federal Government Accounts” + “Federal Reserve System” columns in Table 7.1 of Obama’s 2010 budget.  “Privately Held” = difference between “Intra-Gov” and the “Gross Federal Debt” column of table 7.1.  Annual GDP data from BEA’s National Income & Product Accounts, Table 1.1.5.  (Note that the definition of “Privately Held” debt for Figure 1 below differs somewhat from that used in this chart from my last post; my guess, based on the aforementioned OMB data, is that the Fed data included securities held by the Fed itself in its totals.)

The “Privately Held (Smart Bush)” line in Fig. 1 assumes that Bush II had copied Chile’s example and run up smaller deficits (and eventually surpluses) after the early ’00s recession ended, along the following lines:

Table 1



Privately-Held Debt (% GDP)

Nominal $

% of GDP





















In Table 1, positive #’s denote a decrease in privately-held Treasury debt.  By way of reference, the Clinton-era surpluses lowered outstanding privately-held debt by 1.4% of GDP in 1999, & 2.4% of GDP in 2000.

A few of points come to mind:

  1. Had Bush II followed the “Smart Bush” scenario mentioned above, the federal government would’ve entered the current economic downturn with a much stronger balance sheet, with privately-held debt at 12.6% of GDP instead of ~31%.
  2. In such a scenario, our flexibility in dealing with said downturn (and the associated financial crisis) would’ve been correspondingly greater.  Ditto our breathing room – e.g., via multi-year fiscal stimulus – in the event that the downturn ended up being a prolonged one.
  3. Even under the “Smart Bush” scenario, Obama’s budget plans would’ve remained unaffordable.  See Fig. 2 here.  Although this scenario would’ve allowed Obama to accumulate debt from a lower starting point, the upward trajectory of said accumulation would’ve remained obvious.

On another note…Figure 2 plots nominal federal debt for 1940-1974:

Figure 2:  Federal Debt in $bn, 1940-1974

Historical Publicly-Held Debt2

This confirms something I’d long suspected:  The reduction in debt/GDP ratio between 1948 & 1974 resulted not from a decrease in nominal debt levels, but rather from increased nominal GDP.  We never paid off the debt from WWII.  Instead, we refinanced it; added only modestly to it; and shrank the debt/GDP ratio via inflation & economic growth.

Totally-Unrelated Aside:  I wasted way too much time here this morning.  HT:  The Baseline Scenario.


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