Here’s a note to Duke University economist Ed Tower.
Ed:
Thanks again for your email in which you correctly note that “we should subtract the whole government debt from the accounting figure for the net worth of households, not just the government debt owed to foreigners.” (As for private debt owed to foreigners, that debt – unlike each household’s share of the public debt – already shows up, or so I assume, as liabilities in calculations of households’ real net worth.)
Total U.S. publicly held debt is now approximately $30.4 trillion. When divided by the number of U.S. households (132,216,000), we find that the average share of the public debt per household is $229,927. (Unlike domestically held U.S. government bonds, none of the roughly $7.6 trillion in intergovernmental U.S. government debt shows up as assets on American households’ balance sheets; there is, therefore, no need to subtract intergovernmental debt from households’ net worth.)
The average household’s net worth today (not counting public debt) is $1,224,686. Subtracting from this net worth each household’s average share of the total public debt leaves the average American household’s real net worth today at $994,759.
Today (last quarter of 2024), therefore, the average American household’s real net worth, after subtracting what’s owed through the government to all public holders of its bonds, is 173% higher than in 1975, the last year America ran an annual trade surplus (and 97% percent higher than in 1994, the year NAFTA took effect, and 46% higher than in 2001, the year China joined the WTO).
The figures in the previous paragraph actually underestimate the growth in real household net worth. The reason is that, in calculating these figures, I did not adjust for the share of public debt owed by American households in those previous years (1975, 1994, and 2001). Because making this adjustment would only strengthen my case that 50 consecutive years of annual trade deficits didn’t result in a net drain of wealth from Americans’ pockets, I rest content at the moment to use the above figures to make my case.
To be clear: I’m a budget-deficit hawk. The U.S. government’s fiscal incontinence makes us Americans poorer than we’d otherwise be. Fortunately, our economy, at least until now, has been so entrepreneurial and open that the depredations wrought by Washington have been swamped by market forces – market forces that, fortunately, prompt foreigners to invest heavily in America (and, thus, generate that calamitously misleading accounting artifact known as “trade deficits”).
Sincerely,
Don
