One of the problems with the debate over the “national debt” is that there’s no generally agreed upon definition of that term. Is it what the federal government owes, or what it owes foreigners, or what the whole country, private and public sector together, owes? Does it include off-balance-sheet items and contingent liabilities?
There’s a hundred-trillion dollar gap between lowest and highest on this spectrum, which allows each commentator to confuse the rest of us by picking the measure that best suits their point of view. New York Times columnist Paul Krugman, for instance, uses “net debt” — the amount that the US owes foreigners — to argue that since this number is relatively small and slow-growing, we’re actually fine. Analysts using broader definitions of debt come to the opposite, more apocalyptic conclusion. Consider this from today’s Wall Street Journal, on the impact of off-balance-sheet obligations:
Smoke, Mirrors and Public Deficits
By RICHARD BARLEY
Are public debt and deficit numbers illusory? Perhaps, judging by the ruses employed by governments and identified by the International Monetary Fund’s Timothy Irwin in a recent staff note. Deficit crises in developed countries may only increase the allure of such devices, although they may do little to help in the long run.
European countries got creative as they strove to hit targets to join the single currency during the 1990s. In 2005, Organization for Economic Cooperation and Development researchers cataloged 192 cases of one-time measures and accounting maneuvers across Europe—50 in Greece alone—with effects ranging from negligible to 2% of GDP. In 1997, for instance, France took on the pension liabilities of France Télécom in exchange for a payment of €5.7 billion ($7.6 billion), or 0.5% of GDP.
But Europe wasn’t alone in playing games. In 2003, the U.S. proposed buying 100 refueling planes via operating leases, which would have kept the cost from being recognized upfront. The Congressional Budget Office said that was federal borrowing in disguise and would prove more expensive than a normal purchase.
The euro-zone debt crisis has put these techniques front and center. Portugal hit its 2011 target only via a transfer of bank pension assets that shaved 3.5 percentage points off its deficit.
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