Unexpectedly Intriguing!
January 6, 2006

In Political Calculations' year end post for 2005, we concluded that:

Given how relatively flat the National Debt per Capita has been in the last 5 years, I would almost argue that the amount of debt spending agreed to by the U.S. Congress each year takes something like the National Debt per Capita to Income Index into account. Now that the federal government is pushing the edge of the arbitrarily legislated nominal National Debt Limit, it will be interesting to see if this factor plays a role in setting the amount of the increase of this artificial limit.

Yesterday, the Skeptical Optimist forged into the U.S. National Debt Ceiling discussion by proposing that the nation's debt limit should be indexed to the U.S.' National Debt to Income (DTI) ratio, with the debt ceiling automatically set at 80% of the nation's annual Gross Domestic Product.

Using the December 2005 U.S. National Debt ($8,103 billion USD) and U.S. National Income (Nominal GDP = $12,497.8 billion USD) reported by the Skeptical Optimist, indexing the National Debt Ceiling to be 80% of the U.S.' Nominal GDP would place the debt limit at just under $10 trillion USD at $9,998 billion USD. At present, using the Skeptical Optimist's reported data, the U.S. DTI ratio is 64.8%.

But shouldn't we also take U.S. population growth into account in setting this limit? Since federal government spending is, in good part, apportioned according to the size of the U.S. population, I believe it would make more sense to automatically adjust the U.S. National Debt Ceiling to be in step with something like Political Calculations' National Debt per Capita to Income Index.

Here's what that would mean. Using December 2005's National Debt and Nominal GDP data, as well as today's estimate of the U.S. population of 297,855,637, the National Debt per Capita to Income Index is 2.18 (the current National Debt per Capita is $27,204). If we use the Skeptical Optimist's proposed 80% DTI level to cap the National Debt Ceiling, the National Debt per Capita to Income Index would be 2.69, corresponding to a National Debt per Capita of $33,567 USD. Now, here's the good news - setting the U.S. National Debt Ceiling according to the National Debt per Capita to Income Index would ensure that every individual's share of the U.S. National Debt would not rise above this figure, at least in the constant terms of December 2005's Nominal GDP.

In other words, by using the National Debt per Capita to Income Index, we get a solid debt cap (on a per Capita basis) that's flexible enough to accommodate both GDP growth and population growth.

And all that has to happen to make this possible is for the politicians to willingly give up their unlimited desire to demagogue the issue....


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