How to think about a trillion-dollar deficit

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Here’s a link to a story I wrote about how our puny human brains aren’t particularly up to the task of comprehending big numbers—e.g., $700 billion bailout, $1.2 trillion deficit—and what we can do about it. The piece is designed to be accessible to a broad audience, so I stuck with back-of-the-envelope math that you don’t have to consult a data table or use a spreadsheet to pull off.

For you folks—whom I take to be more of a data table/spreadsheet crowd—I thought I’d add some useful links for thinking about our ballooning deficits. The Bureau of Economic Analysis’s latest read on GDP is about $14.4 trillion a year. A trillion-dollar deficit (which some people are using as shorthand for the Congressional Budget Office’s 2009 projection) would be 6.9% of that. A $1.2 trillion deficit (which some other people are using as shorthand) would be 8.3%. If you use the actual figure released from the Congressional Budget Office—$1.186 trillion—we wind up at 8.2%.

It’s fun to then flip over to the White House Office of Management and Budget’s web site, which has a handy table of deficit (or surplus) as a percentage of GDP going all the way back to 1930. (Click on “Table 1.2” on the right side of the screen.) The last time we were even in this ballpark was 1983, when the deficit was 6% of GDP. The only five years on record that actually top 6% are 1942 through 1946, thanks, of course, to World War II. Although 8.3% is still a pittance compared to the actual figures for most of those years: 14.2% in 1942, 30.3% in 1943, 22.7% in 1944 and 21.5% in 1945. So maybe a trillion-dollar deficit actually isn’t that big? It’s all in the framing.

One other fun link, courtesy of Justin: this web site shows you surplus or deficit as a percentage of GDP for a bunch of different countries, through 2005. We don’t really know what is, but if it is to be believed, then at least we’re no Maldives, with its deficit worth more than 13% of GDP.