An electronic sign near Manhattan's Times Square shows the government debt increasing skyward by the minute. By the time you have read this the debt will have increased by a couple of hundred million dollars. The sign is there to scare us, and it does. Is our fear justified?
Caption: "The National Debt Clock" in New York City offers a constant reminder of government's presence in the economic to passers by. Each day the debt grows by some $2.4 billion.
The debt, you'll recall, is a stock and the deficit a flow. Bring up the image introduced in Chapter 2 of the bathtub as a stock and the water coming into it as a flow and you will see the relation between "debt" and "deficit". The annual increase in the debt equals the deficit. The debt decreases when the government runs a surplus. The annual deficits have certainly been large since the early 1980s, so the debt has increased, too. In August 2006 it exceeded $8.5 trillion, an extraordinarily large sum. Imagine, for example, cramming a 50-foot railroad boxcar with $10 bills. To haul the debt you would need over 12,000 boxcars -- a 120-mile-long train! If we laid the $10 bills end-to-end, they would reach more than 80 million miles, enough to circle the earth better than 3,200 times-in another words, more times than The Rolling Stones. But the amounts become much less impressive when compared to the size of the economy, measured by GDP. Figure 33-6*** shows that deficits have increased relative to GDP. (In the Figure the deficit is expressed as a negative amount and therefore goes down instead of up as it increases.) The government debt is increasing but still has to reach its level of the 1940s relative to GDP.
Figure 33-6 Total government deficit and debt as percentage of GDP, 1940s to 2005