The real debt

“An economist in California recently made a media splash by suggesting that the real national debt is $70 trillion, not $17 trillion. What did he mean? N.C. State University economist Mike Walden responds.

“This gentleman is named James Hamilton. He’s a professor at the University of California campus at San Diego. He’s a very, very well respected economist. He’s been at it for a number of decades. And he recently did some calculations where he looked at the national budget and said, ‘Look, we do have this $17 trillion of national debt.’

“Now what that is is the monies that the federal government has borrowed in the form of treasury securities. It’s on the books. People like average citizens or foreign investors have loaned this amount of money to the federal government.

“So, yes that’s on the books. That’s the number that’s commonly used. But then he went a little further, and he said, ‘Look, we also have promises, promises that the federal government made to perhaps make expenditures in the future if something happens.’

“For example, maybe make additional monies available to Social Security. If Social Security tax revenues fall short, maybe bolster Medicare, maybe pay off student loans. Maybe help the banking system, if the banking system’s having a problem.

“So he meticulously went through the federal budget and asked, ‘What if all these promises sort of come due?’

“They’re implicit promises. What would that do to the national debt? And that’s where he gets that number of $70 trillion. Now I might say that Hamilton is not the only one that has done this. Other economists have also done this. I think the message here is maybe not so much to get caught up in the numbers but to realize that, yes, we do have explicit borrowing the federal government has done. We also maybe have some implicit borrowing that’s there if certain things happen in the economy. And if the government comes through and says, yes, we’re going to do what we promised to do.”