Deficit vs. Debt

Like many Americans, I'm concerned with the state of talks to reduce our government spending. One thing I have found extremely frustrating while researching the steps being taken to address this problem is the inability of the media at large to use the proper terminology. Specifically, I'm concerned with the constant interchanging of debt and deficit as if they were the same thing. This problem exists across written, audio, and video based media forms. The deficit is the negative difference between the national revenue and the national spending. This is an annual figure. The debt is the sum total of all the money owed by the nation. It is the accumulation of all the deficits and surpluses, plus accumulated interest.

First thing, the U.S. does NOT have a $14 trillion dollar deficit! I can't believe how often I have read/heard this. That's almost the entire GDP for 2010. That would mean our government is spending twice what the entire country (not just the government) produces in the year. The reality of our budget is unsustainable, but this is just absurd. The actual deficit is in the neighborhood of $1.5 trillion, while the debt is just above $14 trillion. (More than twice what it was when I took economics in 2003!)

Second, all the plans that are floating around to reduce the national debt will actually do nothing to reduce the debt. In order to reduce the national debt, we would need to cut spending and raise taxes (both are necessary) to a level which is greater than the deficit. The most ambitious plan currently bouncing around Washington plans to cut $4 trillion from the deficit over the next 10 years. Assuming that this plan passes and there is no increase in spending in the next 10 years, that still leaves us with a ~$1.1 trillion dollar annual deficit, or an additional $11 trillion added to the national debt. To really make a difference, we need a minimum of $15 trillion in cuts over the next 10 years. Even that level of cuts would only prevent the debt from increasing too much (there's still interest to be paid). We would need even more drastic cuts to start reducing the debt.

The third thing that is frustrating is the "over the next 10 years" phrase that is used frequently when talking about reduction figures. It is a way of inflating the numbers to make them sound larger than they actually are. The phrase becomes well hidden in articles or lost in retelling when people discuss the economy with others. We should be talking in annual figures so the public is fully aware of the reality and gravity of the situation.

It is important to use the proper terms when reporting the news. As journalists or television/radio personalities you have a responsibility to report the facts. Reporting poorly worded "news" only creates a misinformed public which will make important decisions (like in the voting booth) based on bad information. There are news outlets which understand the proper distinction and even dive down to report the reality of the numbers being tossed around, but those are sadly the exception.

Taken from a blog on deficit on the internet.
Sunday, July 10, 2011.