Any figure that errs by a factor of 1,000 requires correction. We noted here yesterday that total debt in the American economy is now about $4.5 trillion. The next sentences should have said that about $1.5 trillion of it is owed by private individuals and $1.2 trillion is corporate debt, as legally defined, is now slightly over $1 trillion. But since part of the debt is held by the federal government, net federal debt is still a little under that figure.
Concerning That Trillion Dollars
True, a trillion dollars is a large sum of money. President Reagan keeps making gloomy references to that figure, as the federal debt approaches it. The thought seems to oppress him. He cannot understand why his fellow citizens allowed their government to run up such an unconscionable bill. But is a trillion dollars too large a debt? Compared with what?
The total debt in the American economy is now about $4.5 trillion. Of that, $1.5 billion is owed by private individuals. Two-thirds of it is mortgages; most of the remainder is consumer credit. Another $1.2 billion is the debt of business corporations--bonds and notes and this and that. There's the federal debt, still something under a trillion, and the one-third of a trillion that is the debt of state and local governments. The rest is owed by unincorporated businesses, by farmers and by foreigners who have borrowed here.
It's not entirely clear why federal debt is morally reprehensible when private debts are apparently okay--and certainly no modern economy could operate without them.
There's another way to measure the federal debt. You can compare it with the size of the national economy--the gross national product. At the end of World War II, the federal debt was slightly larger than the GNP. By the latter 1950s, it was half of GNP. By 1974, it was one quarter of GNP.
But here Benjamin M. Friedman of Harvard draws attention to a highly interesting phenomenon. While federal debt was dropping steadily in relation to GNP, other debt was rising in almost exactly the same amounts. All debt together, public and private, has been almost exactly the same in proportion to the size of the economy ever since the late 1940s.
Since 1975, the federal debt has departed from that 30-year declining trend. It is now up again to about 28 percent of GNP. Since the total amount of debt remains constant, that rise helps explain the pressure on other borrowers and the present high interest rates.
Evidently it is not the size of the federal debt in dollars that counts, but rather the trend that it follows in relation to the rest of the economy--and whether it is on a predictable track to which the rest of the economy is adjusted. For the past several years that has not been the case. It is being driven up unexpectedly, by a succession of erratic and heavy deficits in the federal budget. As a moralist Mr. Reagan deplores the debt. But as president he has sent Congress a budget that--even if passed exactly as he presented it--will dangerously accelerate that rise of the debt.