We Need a National Balance Sheet
(from Sean Casten campaign)
Does the United States have too much debt? To judge from talking heads on TV, self-proclaimed “fiscal conservatives” (whatever that means) and any number of folks on the far left or right, the answer is yes. But here’s the problem: given how we report our national accounts, the question is barely answerable. What’s worse, to presume the question is answerable is to make a mistake that would probably flunk an Intro to Finance paper. Because we have no national balance sheet.
Suppose you just took out a $300,000 loan to buy a $500,000 house. Suppose that on the same day, your cousin, who rents an apartment took out a $200,000 loan to go travel around Europe for the summer. Assume for the sake of this example that you both have the same income and have no other debt. Clearly, your cousin has less debt than you do. But no one would conclude that he is the more fiscally responsible of the two of you. Looking only
at debt and income, you’d draw the opposite conclusion. That is essentially what we do when we talk about national debt. We report debt and we report on GDP and trade surpluses/deficits (both of which are measures of income). But we never report on the value of the assets we hold against that income and debt, which means we have a lot of very misinformed conversations. What is the value of our federal lands? Currency reserves? Overseas embassies? Trade agreements and treaties? Some of these are easier to precisely value than others, but they are all clearly worth something. Some reasonable back-of-the envelope calculations suggest that the total assets of the United States are about $200 trillion, or 10x our total debt. That’s a kind of important fact to know before we’re going to talk about whether our debt levels are too high.
Having a national balance sheet would let us have that conversation. It would also compel us to have a conversation about changing balances. If a business sells a piece of inventory to gain some cash, its cash assets increase and inventory assets decrease. Whether that’s a good thing or not depends on whether the inventory was sold for more or less than its value. And yet we never do that on our federal accounts. If the government sells off a chunk of national forest for oil & gas exploration, they’re reducing their own value by the land (and mineral rights) that used to belong to the government as they gain cash. That is neither an unmitigated environmental or financial good — and having a national balance sheet would explain why. Some countries do calculate a National Balance Sheet. The UK for example. Perhaps someone can educate me as to why we don’t. But in the
meantime, here are some things we should be talking about whenever we get into a conversation about appropriate borrowing levels. • What is the purpose of incremental borrowing? As in the example of you and your cousin, there is a big difference between borrowing to build new assets and borrowing to increase non-accretive spending. If we don’t ask what the cash will be used for, we can’t have an informed conversation about whether it’s appropriate. • If the investment is for a new asset, what is the expected return? A new port that generates long term future revenue streams and earns a 7% return on invested capital is a good idea… but only so long as we can borrow money at less than 7%. To be sure, not all investments deliver readily-calculable returns, but there’s no sense in having a
conversation about interest rates on the national debt if we’re not comparing those to the (hopefully higher) return we’re getting on the proceeds from the resulting investments. • How do fiscal decisions impact the balance sheet? When we borrow to buy an asset we change our assets and liabilities. When the City of Chicago sold off their parking meters, it gained short-term cash, but lost an asset. One can reasonably ask in both cases whether the gain exceeded the loss, but you can’t ignore both sides of the ledger. There are of course MANY things that we want to have as a society that do not lead to increases in our asset values. We should pay teachers a competitive wage. We should make sure that consumer protection, environmental protection and a host of other compliance/enforcement agencies have all the resources they need to do their jobs well. Those things of course lead to a more robust and viable nation, even if it’s not possible to quantify or estimate their value. A national balance sheet is not a replacement for conversations about social justice, equality and other social benefits that cost money. It is an AND, not an OR. Actually assembling a national balance sheet would be a huge piece of work, and it would involve a lot of rough estimates. But every day we continue without one, we are not only “flying blind” but also furthering a lot of economically innumerate decisions. Let’s put one together and be smarter.
Sean Casten is the Democratic nominee for Congress in Illinois’ 6th district. To learn more about Sean, visit www.castenforcongress.com.