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America’s Deeper Debt Crisis


How big would America’s “debt crisis” be if we looked not merely at (largely artificial) financial costs, but at real economic — social, human, natural, personal, emotional, and more — costs? You probably don’t want to know.

But grit your teeth and let’s do a quick back-of-the-envelope calculation just for fun.

To begin with, America’s gross public debt as a percentage of its GDP is around 98ish (aka, its debt/GDP ratio). But there’s a whole lot of costs that measure doesn’t begin to count. They’re the costs of restoring and rebooting the bare beginnings of an authentic, meaningful prosperity. They mean we might begin to have meaningful work and play (instead of work that destroys our souls and leisure that dumbifies us), a thriving environment (instead of one that’s withering), markets that work (instead of blow up), society that connects (instead of fractures and polarizes) and infrastructure that works (instead of crumbling airports, battered buildings, and roads that, at this point, look like the set for an end-of-days zombie apocalypse flick). How high would America’s debt/GDP ratio be if we added these costs?

Here are some mildly educated guesses (please note: since this isn’t a 300-page book or even a 5,000 word article, I won’t fully explicate them, but leave them open for discussion and for future blog posts. You’re more than welcome to challenge them, add your own, or even add or subtract entire categories).

  • My hunch, based on roughly comparable costs across the globe, is that the costs of the full spectrum of environmental damage would clock in around 10% of GDP.
  • A very incomplete set of human costs — stuff like marginally declining gains in life expectancy, education, and experience; depreciation in talent, skills, and creativity ? would probably, based on rough unit costs per person, clock in around 5% of GDP.
  • A limited number of social costs — financial markets that blow up regularly and get bailed out, fueling moral hazard and malinvestment, industries like autos, energy, and agriculture that receive hidden subsidies, pure rent-seeking and deadweight loss that leads to foregone efficiency in industries like law, lobbying, retail, and banking — I’d say come in close to 15% of GDP.
  • A basic conception of what you might call emotional costs — at a bare minimum, the toll a sense of meaninglessness, pointlessness, what management thinkers call “disengagement” and “apathy” takes on real productivity, efficiency, and effectiveness; the toll of a rising tide of poor and ill mental health on the same — I’d say, considering American levels of productivity, probably clocks in around 15% of GDP. (In other words, I think you could get 15% more from your employees if you tapped into their inspiration and imagination, and set them to work on stuff that actually mattered.)

Now, let me emphasize that I’ve made plenty of simplifications on the quick and dirty napkin of a worksheet above. But the not-so-secret dirty secret is that, well, so does GDP itself. The point is in the thought experiment itself: you can swap in or out whatever categories you like, but the point is that the “debt” we owe, if real prosperity is the destination we seek, is bigger than we think. For the above are essentially off-balance-sheet liabilities — a set of hidden costs brushed under the rug in the economic equivalent of a ginormous, ongoing national Enron.

By these rough estimates, while the official debt to GDP ratio is approaching 100%, our debt-to-prosperity ratio is probably higher — maybe much higher. Just by considering an incomplete set of real economic costs very imperfectly, we’ve arrived at a number closer to 145%. I’d say just a slightly fuller, more nuanced, less conservative take could easily the push “the number” closer to 200% — if not past it.

America’s real economic crisis is one of what, in the Manifesto, I call deep debt.

Think about it this way. 100% debt as a percentage of GDP is a number that’s got the (mostly) old (mostly) dudes that run the world in brow-beating hysterics, crying: “Armageddon!!” But they’re missing the point. A large portion of the 100% of GDP that’s financial debt is public debt — which for all its many sins, is mostly covered.

While there’s talk of America “defaulting,” no one takes seriously the idea that America’s going to leave financial creditors without a penny on the dollar — just that it might have liquidity issues for a brief while. Yet, real default — a few pennies on the dollar of debt — is exactly what America’s been doing to its economic creditors, parties who I’d argue should have, at least in some cases, self-evident priority over financial markets: people, communities, society, and tomorrow’s generations. For the very real, human, natural, and social costs owed them — at least if a higher level of prosperity is what you’re after — have been pushed aside and left largely unfunded and underpaid, when they’re paid for at all. Result? This Great Stagnation: not merely a financial crisis, but deep in it’s heart, a crisis of squandering and underinvesting in human potential itself.

Consider it a tiny, imprecise exercise in what I call “eudaimonics” — the art and science of rebuilding a prosperity that matters in human terms: the pursuit not merely of mass-made, lowest-common-McDenominator, faux-designer opulence, but of lives meaningfully well lived. If we conceive of “debt” not merely as an accounting device meaningless in human terms, a financial fiction owed to nominal creditors — but as a real economic burden owed to the eudaimonic promise of a meaningfully good life, then our economy isn’t just underperforming: it’s dysfunctional.

Igniting eudaimonic prosperity isn’t about paying off financial debt. We can manage that perfectly for decades and never get any closer to mastering the art of lives lived meaningfully well. Rather, it’s about the ability of a nation to pay down and pay off its deep debt to the authentic creditors that create and sustain that nation.

So here’s my conclusion — and my catch.

America might never master eudaimonics. But here’s what’s for certain: there are nations, perhaps wiser, perhaps just hungrier — who will. It’s to them that a meaningful prosperity will accrue — and from them the lion’s roar of advantage will be heard.

NB: Astute readers will note that while the gross public debt of the US is near 100% of GDP, the total debt — composed of bank, business, and household debt, roughly — clocks in north of 300% of GDP. Rather than just adding up the debt of those well-established buckets, I think a more challenging approach is to create entirely new buckets for a more resonant, meaningful conception of “debt,” as above.

HBR.org

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