US Government Debt - Is it time to panic? I think not.

I try not to get involved in political debates. But recently, I've seen many opinions and stories about the growing economic debt of the United States government. As a concerned citizen, I tried looking a little further into it. Yet most material that I find requires significant understanding of fiscal policy or economics. Unfortunately, I do not have such a background. However, I was recently pointed to an article which gave the opinion of Paul Krugman, a Nobel Prize winning economist and Professor at Princeton University.

He makes many good points to help clarify which clarify what the laymen may be worried about (albeit with liberal/democratic bias). I can't confirm if he is correct in his opinion, but I'll summarize:

• The raw amount of US debt is estimated around 12 trillion, with 5.6 trillion owned by foreign entities, 1.1 trillion owned by China. Data from Wikipedia (sources within)
• Unbeknownst to many, the raw amount of US debt is largely media-jargon. The measure of interest is really the debt to GDP ratio. The US GDP is approximately 15 trillion for a debt-to-GDP of approximately 75%. It is surmised that a 90% debt-to-GDP ratio is the point at which the economy could be in jeopardy of repeating events in Greece.
• Decreasing the debt is not really important. Contrary to the many graphs showing US debt increasing nearly every year, this is natural. Note that the debt increases, but as the economy grows, so does the GDP. Hence, in times of economic prosperity, the debt can significantly increase (say by 1 trillion), but a growing economy counterbalances the debt-to-GDP. 
  
  "Funny thing is, every president between (not including) [Franklin Roosevelt] and Ronald Reagan left the debt-to-GDP ratio -- the usual measure of the government's position -- lower when he left office than when he came into office. So we actually had a long stretch of very fiscally responsible government. Then we had a big increase under Reagan/[George H. W.] Bush, then it fell sharply under Bill Clinton, then it rose some under George W. Bush and then of course we had the worst economic crisis since the Great Depression."
  
• It is not necessarily beneficial to borrow less. Currently, the government is inflating the economy and stimulating growth through the well-termed stimulus package. However, note that the government receives revenue from the taxes paid by companies on their growth due to the stimulus package. Say the government did away entirely with the stimulus money. This could result in slower economic growth and therefore less tax revenue.
  
  "In other words, if the government borrowed less, it would so slow the economy, tax receipts would go down by more than the amount borrowed."
• What could happen if the debt continues to spiral? One measure of the economic debt is the interest rate at which the US receives for their bond offerings. A lower interest rate implies there is little risk in the investment. If the US continues to incur debt, the perceived risk will increase, and the interest rates will increase.
  
  Additionally, as the interest rates increase, the value of the dollar weakens. This isn't altogether bad. A weaker dollar will stop jobs from going overseas and bring jobs back to America and fight the unemployment problem which partially caused the current economic mess. 

Bottom line, I wouldn't worry too much about the debt. It is largely a factor of the current economic downturn. If the economy grows, the debt shrinks. Until the interest rates jump up, it would seem that world-wide investors are not worrying about our debt, neither should you. That being said, I still believe the government should eliminate spending in certain areas (but that is another post altogether). 

To be clear, I am not advocating any government decisions (i.e., the stimulus packages). I am simply trying to explain the trade-offs taken and why they are neither right or wrong, just simply a decision made with pros and cons.

Doh! Learning Through Mistakes

As a PhD student, I often face tasks which are too difficult to fully plan out solutions. Sometimes it's formulating and solving a research problem. Other times, I am trying to craft a well written story and write a publication. Nevertheless, very rarely can I look at a problem and instantly see the path to success.

Instead, I HAVE to take a first iteration at the problem. DOH! 'New pad, crinkle it up, throw it out'. Repeat. It'll probably take a number of failures to gain any tangible progress at all. But, along the way, I am learning from my mistakes. Each failure teaches me something new and by the time I have a solution, it looks nothing like what I thought it would.

This applies more generally to life decisions as well. After graduating high school, does anyone know exactly what job they want? Does anyone have the next 20 years of their life planned? Most likely, the answer is no. Instead, people take on a similar iterative approach, learn along the way, and adapt.

Ultimately, the important lesson learned here, is not to be afraid of making mistakes. Sometimes the sheer size of the problem or magnitude of the decision can be enough to scare people into sitting idly, trying to carefully plan out a solution. I had a manager once who gave me an assignment and we were to meet a week later. His evaluation criteria was, "Present something at least 50% of what I asked for. If it's less, we will scrap it and start over. Otherwise, the following week present something that's 50% closer again." I like this approach [although the mathematicians in the audience will argue something above time to convergence :)].

Keep trying. Keep making mistakes. Keep learning.