The key chart
50 years of US public sector debt dynamics – plotted differently! (Source: FED;CMMP)
The key message
If you wanted to create panic over US public sector debt there are a number of tactics that you could use:
- ignore the fact that US debt is a liability for one economic sector and an asset for another;
- make no comparison with GDP;
- ignore inflation etc.
Alternatively, you could simply present your data using linear scales – an easier and almost guaranteed method to instil panic!
1 unit of XZY growing at 10% p.a. over 100 years plotted on a linear scale (Source: CMMP)
Why is this a smart tactic for creating panic?
In the case of any long time series data that has low initial values and a constant growth, the use of a linear scale will always create a chart that is flat for a long period at the start, then becomes steeper and steeper before becoming virtually vertical (see chart above). Readers’ eyes will naturally focus on the steepening of the graph, thereby leading to the conclusion that some form of critical limit has been reached
BINGO – “PANIC ALERT!”
In contrast, the wrong tactic for creating panic would be to present data using a log scale (the maroon line in the key chart). Rather than illustrating the absolute level of US debt (the blue area) this would show its rate of change.
As can be seen, this is (1) fairly constant over time (US debt roughly doubles every ten years in nominal terms) and (2) is slower now than in early parts of the period shown. Presented this way (see chart below), the same underlying data is much less likely to create panic…
1 unit of XZY growing at 10% p.a. over 100 years plotted on a log scale (Source: CMMP)
For the rest of us, it is worth considering how different parties chose to present the same data to support their respective arguments, especially as concerns (false or otherwise) over the US debt ceiling intensify.
Remember, a chart of US public debt using a linear scale is highly likely to create panic, even if the rate of change of debt is constant.