It’s rare that a United Nations report can engender optimism about anything, let alone America’s finances. But a recently issued (and mostly overlooked) study from the global body’s International Human Dimensions Program might just turn the trick, at least when it comes to U.S. federal indebtedness. It turns out that, at least from one angle, we’re not in as deep of a hole as we think! Blandly labeled the Inclusive Wealth Report 2012, this impressive research project, which is super fun to explore, is the first serious attempt to measure the total wealth of the planet’s richest countries. Not income, mind you, which is what Gross Domestic Product (GDP) refers to, but rather total wealth, i.e., the comprehensive value of the physical assets (buildings + roads+ equipment + railroad tracks + etc.), human capital (population + education + skills + earning potential + life expectancy) and natural resources (land+ trees + minerals + fossil fuels). As you , the winner, by a long shot, is the United States, with an inclusive wealth figure of roughly $118 trillion (in 2000 dollars). That’s more than double the total of the next wealthiest country, Japan ($55 trillion), and almost six times the cumulative value of all the tea plus everything else in China ($20 trillion).
Japan, to give credit where it’s due, tops the ranking of per capita inclusive wealth, at better than $435,000 per person. The U.S. was No. 2, at a little more than $386,000.
So all Americans are pretty rich, by at least one measure. Just don’t expect to borrow against it.
But more on that later.
For now, let’s focus on this potentially cheering reality: The value of all measurable U.S. assets is more than seven times the total of the federal debt, which is fast approaching $16 trillion. When you look at our collective national borrowing in this (admittedly refracted) light, our federal debt picture suddenly starts to look a little brighter. That is, if we use the aforementioned amounts to calculate our country’s debt/equity ratio—a classic measure of financial health—we’re not doing too shabby. While debt/equity ratios can be measured in any number of ways, it’s generally accepted that a company with a ratio of less than 3 to 1 is doing okay. (This will vary from one industry to another. Capital-intensive industries like automaking typically have higher ratios.)
So what is America’s debt to equity ratio, using the U.N.’s inclusive wealth figure? Why it’s a paltry 0.13 to 1! Heck, even if you count the sum total of all U.S. debt—just shy of $57 trillion (gulp) when you include federal, state and local governments, home mortgages and student loans and a few other IOUs—you will still come up with a debt/equity ratio of less than 0.5 to 1.
To be sure, this cup-half-full view of our national ledger has some serious flaws, not least these :
1. We’re leaking resources. Like all but three of the 20 countries measured, the U.S. experienced a decrease in natural capital from 1990 through 2008 (the years examined in the study). It was a slight decrease in percentage terms, from just less than $6.9 trillion to slightly more than $6.6 trillion, but it was a drop nonetheless. (We need to start planting more forests—or discovering more gold and natural gas reserves.)
2. We’ve got a liquidity problem. Companies can sell assets to pay down debt. But it’s difficult to imagine us reaching a national consensus on which National Park we should unload to pay off China. That said, some countries have sold valuable lands in the past to raise funds. (See: Purchase, Louisiana.) And other countries have nationalized specific industries as a way to generate revenue. (See: America, South and Latin.) Now that’s a prospect that could make a lot of guests at the 2012 Oil Barons Ball nervous!
3. We’re mostly rich in people. Even if we did decide to hold a national garage sale to eliminate some IOUs—Who wants to buy a really grand canyon?—we don’t have as much upside as one might hope. That’s because human capital accounts for about three of every four dollars of total U.S. wealth, according to the U.N. Most of what we’re worth is who we are (and what we will produce in the future). That’s a great thought for a yoga retreat but a less-than-deal asset class.
Still, even if our country’s debt/equity ratio doesn’t provide an easy or practical way out of our national hole, it’s comforting to know that our balance sheet is still relatively healthy, at least as measured by a research team sponsored by a global body that isn’t on the U.S. Chamber of Commerce’s speed dial.
More to the point, and despite what you might hear during this year’s election cycle, more traditional measures of indebtedness are actually telling a positive story. Last quarter, public and private debt as a share of the national economy dropped for the first time in about three years, from 3.73 times GDP to 3.36 times GDP. We have a long way to go, but as a country we have actually been “de-leveraging”—paying down debt—which is one of the reasons the economy has been sputtering. It’s an ugly and painful process, but it’s necessary and working.
It’s also a lot better than selling Rhode Island to the highest bidder.