Let’s begin by putting the government debt in perspective. In 2001, the debt
of the U.S. federal government was $3.2 trillion. If we divide this number by
276 million, the number of people in the United States, we find that each per-
son’s share of the government debt was about $11,600. Obviously, this is not a
trivial number—few people sneeze at $11,600.Yet if we compare this debt to the roughly $1 million a typical person will earn over his or her working life,
the government debt does not look like the catastrophe it is sometimes made
out to be.
One way to judge the size of a government’s debt is to compare it to the
amount of debt other countries have accumulated.Table 15-1 shows the amount
of government debt for 19 major countries expressed as a percentage of each
country’s GDP. On the top of the list are the heavily indebted countries of Japan
and Italy, which have accumulated a debt that exceeds annual GDP. At the bot-
tom are Norway and Australia, which have accumulated relatively small debts.
The United States is in the middle of the pack. By international standards, the
U.S. government is neither especially profligate nor especially frugal.
Over the course of U.S. history, the indebtedness of the federal government
has varied substantially. Figure 15-1 shows the ratio of the federal debt to GDP
since 1791.The government debt, relative to the size of the economy, varies from
close to zero in the 1830s to a maximum of 107 percent of GDP in 1945.
Historically, the primary cause of increases in the government debt is war.
The debt–GDP ratio rises sharply during major wars and falls slowly during
peacetime. Many economists think that this historical pattern is the appropriate