Recently, I have seen the graphic below floating around and heard various comments about how dire the situation is and wanted to provide one quick rebuttal (for lack of a better word). But first, let me show you the apocalypse du jour graphic.

This chart shows the National Debt growing from less than $1 trillion in 1971 up to our current debt of approximately $23 trillion.

Alarming, right? Maybe. That’s correct, I said maybe should be the answer, because it’s the only answer anyone can say for sure. We can’t see into the future to know whether this becomes a real issue or not. But let’s just play along for a moment and look at corresponding data to see if it is as much of a concern as many people would like you to think.

For what it’s worth, I plan to dedicate some time to the national debt issue in future posts, but what I wanted to focus on is just how this data might seem scarier than it actually is.

It’s easy to make just about any data look scary if there is nothing to compare the data to. This is because information generally only makes sense when it is presented next to another relative piece of information. So, just as one comparative option, let’s look at our Gross Domestic Product over roughly the same time frame.

The chart above shows the Gross Domestic Product of the U.S. from just over $1 trillion in 1971 to almost $22 trillion in 2019. This is about the same growth rate as the national debt. But wait - the chart above doesn’t look nearly as hopeful as the other chart looks scary. That’s just how the data is presented. Let me fix that. Below is a chart using the data downloaded from the graphic above, but presented in a more extreme fashion.

Okay, now side by side. I didn’t want to spend significant time matching the graphs perfectly, but I just wanted to show the point that our country’s growth and debt have run on very similar trend lines.

My only point in showing this information isn’t to convince you that the national debt isn’t a problem. I don’t know if it is or isn’t. What I do know is when any information is presented without another relative data point, it can seem far more alarming.

Let’s not lose sight of the fact that while our national debt has grown, our national output has grown in a very similar fashion and the long-term effects of this debt increase are yet to be determined. I do believe something needs to be done eventually, but to this point, there haven’t been nearly the ill effects that people have been predicting for decades now.

And the data would show that if you have made long-term investment decisions based on a national debt argument, it has likely been a bad bet and may continue to be so into the future.

Stay the Course,

Ashby

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This post is not advice. Please see additional disclaimers.