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.