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December 15, 2006

Evaluating deficits and debts

The annual federal budget deficit is between $200 billion and $300 billion, and the total national debt is near $8 trillion. How should we evaluate these large, scary numbers? Mike Walden answers.

“Well, you don’t want to just look at those numbers that you just cited because, of course, you will be scared. They are big numbers. But just like for an individual household, if someone says that they have $50,000 worth of debt, you wouldn’t know if that is big or small because you need know on what base: What’s their income? What’s the value of their investments?" explains Dr. Walden, an economics professor at N.C. State University. "For someone earning $20,000, $50,000 is big; for someone earning $1 million a year, it’s small.

"So we want to do the same thing with the national government or the national economy. Typically what economists do is we look at these numbers in terms of the annual value of our economic production. And when we do this, we see the budget deficit is running around 2.5 percent of our economy, and the national debt is about 60 percent.

"These are both numbers within normal historical ranges. They are not way off the charts," Walden concludes. "They are about where they have been for a long time. I think the big issue among economists is will they stay there."

Posted by deeshore at December 15, 2006 05:16 PM