An Upward Dow Helps an Incumbent President

Interesting Debt Facts

by Elaine Schwartz    •    Jul 26, 2011    •    580 Views

1. China and the Social Security Trust Funds have more in common than you would expect.

  • The public has purchased $9 trillion of U.S. debt. China holds $1.1 trillion of the publicly held total.
  • The U.S. government bought $4.6 trillion of its own debt. The Social Security Trust Funds hold $2.6 trillion (57%) of that amount.

    2. During wartime, the debt has increased.

    On this graph, a line representing the debt soars during the:

    • 1790s (American Revolution)
    • 1860s (Civil War)
    • 1940s (WW II)
    • 1980s and now.

    It is highest during WW II.

    3. Calling it our “fiscal exposure,” we can picture future spending:

    • “Explicit Liabilities” that include “debt held by the public {interest payments}, military and civilian pension and post-retirement health benefits, environmental and disposal liabilities.”
    • “Contingencies” aka federal insurance.
    • “Implicit Exposures” which are “future Social Security and Medicare benefits, Federal disaster relief.”

    All data is for 2010 from an excellent GAO debt primer.

    The Economic Lesson

    An MIT professor calls it BATNA (Best Alternative To a Negotiated Agreement). Economists call it opportunity cost (the best alternative that was sacrificed).

    Using one opportunity cost chart for President Obama and another one for Speaker of the House Boehner is a handy way to gain insight about the debt ceiling talks. At the top of each chart we would have “agreement” and the alternative, “no agreement.”  Professor Tom Kochan believes that the Republican Caucus in the House is in a much better negotiating position because their constituency approves of the opportunity cost (their BATNA) of having an agreement. By contrast, the “no agreement” BATNA is less attractive to President Obama.

    An Economic Question: For President Obama and Speaker Boehner, in an opportunity cost chart, list the benefits of having an agreement and the benefits of not having an agreement. Then decide whether those benefits are worth sacrificing.

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