U.S. Deficits and Debt Facts versus Hysteria

It never ceases to amaze me how often I need to repeat certain statistical facts about the state of deficits and debt in the U.S. and elsewhere because of the headline hysteria in the press(even the quality financial press) about the supposed disasterous state of U.S. finances. So here goes again.

Facts: the American deficit as a percentage of the GDP 0.6 % of the GDP in 1930. It then rose steadily until it reached 5.9 % of the GDP in 1934. In 1935 it was 4 %;

1936 5.5 %;
1937 2.5 %;
1938 0.1 %;
1939 3.2 %
1940 3.0 %
1941 4.3 %

1942 14.2 %
1943  30.3 %
1944  22.7 %
1945  21.5 %
1946   7.2 %

1947    (1.7 %) a surplus and in surplus  until 1950.(All the data is from the Historical tables of the U.S.budget for the fiscal year 2008).


Now the hysteria: the deficit has risen because of the financial crisis, the huge rise in unemployment and possibly also because of certain tax expenditures such as cutting the taxes of the wealthiest taxpayers. It reached 10 % of the GDP in 2009; 8.9 % in 2010 and is projected to hit 9.8 %in 2011.

The U.S. in 1943 was a much poorer country in terms of real GDP per capita than now and yet it sustained a deficit that was in terms of percentage of the GDP more than three times as large. In fact, once full employment was restored the U.S .economy underwent a prolonged period of growth and prosperity that followed the end of the war.

 The debt to GDP ratio that is gross debt  as a percentage of the size of the GDP peaked during the last century in 1946 at 108.6 % of the GDP. Net debt held by the public , as opposed to U.S.government accounts was smaller in 1946 at 97.9 % of the GDP. (Source of data see above)

The current level of U.S. gross debt in relation to the GDP for 2010 was 62.1 %.

 It is projected to rise to 69.4 % by the end of 2011.

Perhaps room for some concern mostly because of the high unemployment but definitely not the hysteria shown by some.