Does the size of a country's national debt with respect to the size of its economy affect its economic growth prospects?
To find out, we created the following chart showing a relationship between the inflation-adjusted economic growth rates for the member nations of the Organization of Economic Cooperation and Development (OECD) against their "publically-held" debt-to-GDP ratios in 2011.
That matters because economic growth is exponential. A nation whose economy grows at an average rate of 3% per year will double in size in roughly 24 years. A nation whose economy grows a full percent less than that at an average rate of 2% per year will take 36 years to double in size. The difference between the two growth rates is very noticeable.
Looking at the United States' position on the chart, we note that the debt indicated in the chart applies only to the "publically-held" portion of its national debt - if we included the "intragovernmental" portion of its national debt, as would represent a more correct accounting of how much money the U.S. government has really borrowed, it would be over 100% of GDP in 2011.
CIA World Factbook. Country Comparison: Public Debt. Accessed 27 May 2012.
CIA World Factbook. Country Comparison: GDP - Real Growth Rate. Accessed 27 May 2012.
Political Calculations is a site that develops, applies and presents both established and cutting edge theory to the topics of investing, business and economics.
Be the first to read Political Calculation's column. Sign up today and receive Townhall.com delivered each morning to your inbox.
NEW TIME Today, at 9:30 AM PT: Get the Market Movements in Advance; Williams Edge Webinar for January 28th 2014 | John Ransom