The Peter Peterson Gang and its accomplices like to scare people with talk of the extraordinarily high debt-to-GDP ratio. As folks familiar with economics know, the nominal value of the debt means almost nothing. Insofar as we can talk meaningfully of a burden being imposed on our children it would be the interest that we have to pay on the debt. This is actually near a post-war low measured as a share of GDP. This measure nets out the interest payments that are rebated from the Fed to the Treasury, so it is somewhat different than the measure of net interest often shown.

Interest percent of GDP 28855 image001Source: Congressional Budget Office.

Of course, the interest burden of the debt is just one way that we make commitments for future generations. When the government grants patent and copyright monopolies it is allowing companies to charge prices that are far above the free market price for their products. This is effectively a privately collected tax. The sums involved are quite large. In the case of prescription drugs alone we pay $430 billion a year for drugs that would cost around $60 billion in a free market. The difference of $370 billion is almost 2.0 percent of GDP, a sum that is more than twice as large as the interest burden on the debt.

We do need to provided an incentive for research (see Rigged, chapter 5 — it's free), but there are almost certainly more efficient mechanisms for providing incentives than patent protection, at least for prescription drugs. But more importantly for the issue at hand is that the government is obligating these payments long into the future.

If we are worried about the well-being of our children, the fact that the government is making them pay an extra $370 billion a year for drugs, and much more for other items as well, should be every bit as concerning as if the government raised taxes itself by $370 billion a year. Of course, this assumes that the issue is actually a concern for the well-being of our children. If the goal is to scare people into supporting cuts to Social Security and Medicare, then the debt-to-GDP ratio is the right measure.