As should be clear by now, when there is a topic that I find interesting and want to explore a little bit, this blog has become the venue where I can riff on it and see whether any interesting conclusions can be fleshed out. With that in mind, this posting covers a subject that I have often wondered about, but never spent any time really examining until now. Consider yourself warned.
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It is well documented how the United States ran budget surpluses in the late 90s (a fact that can be observed here). At the same time, while the public debt was going down, the national debt was continuing to increase every year (a fact that can be observed here and here). So, what explains the difference, and what are the implications?
As a starting point, it is important to understand that the national debt consists of two pieces: the public debt (which per the Treasury website covers "all federal debt held by individuals, corporations, state or local governments, foreign governments, and other entities outside the United States Government" and includes "Treasury Bills, Notes, Bonds, TIPS, United States Savings Bonds and State and Local Government Series securities") and intragovernmental holdings ("IG") (again, per the Treasury website, these are "Government Account Series securities held by Government trust funds, revolving funds and special funds"). The first piece is that which you hear about all the time when there is a treasury auction. The latter is comprised of government borrowings from trust funds, like social security, the civil service retirement and disability fund, and the military retirement fund. It is debt, like any other, that needs to be repaid, or else the programs that it borrows from will not be able to pay out to their beneficiaries.
Thus, by implication, if the public debt portion was decreasing in the late 90s, but the national debt was still going up, the explanation must lie in a substantial increase in the IG category. The question is, on order of magnitude, whether this more obscure piece was increasing at a rate consistent with recent historical trend, or whether it ramped up and therefore calls into question the legacy of a prudent and fiscally responsible government during that period.
Specifically, below is the degree of IG borrowing that occurred (with the given annual (surplus)/deficit in parentheses next to it):
1991: $162.7 Bn ($269.2 Bn)
1992: $109.0 Bn ($290.3 Bn)
1993: $91.8 Bn ($255.1 Bn)
1994: $78.1 Bn ($203.2 Bn)
1995: $117.2 Bn ($164.0 Bn)
1996: $143.4 Bn ($107.4 Bn)
1997: $166.4 Bn ($21.9 Bn)
1998: $182.3 Bn (($69.3) Bn)
1999: $255.7 Bn (($125.6) Bn)
2000: $254.1 Bn (($236.2) Bn)
2001: $261.5 Bn (($128.2) Bn)
At first blush, it would appear that the surpluses from 1998-2001 also coincided with large jumps in the IG segment. An important disclaimer is that the social security trust fund was taking in a lot more money than it was paying out, largely due to the tremendous job growth that was witnessed (contributing to both the surplus and the funds available to borrow on the IG side). However, it is also clear that the government could be accused of a little bit of tricky accounting, in that it still borrowed a whole lot and used the IG avenue to make it less obvious.
Nevertheless, my goal here was not to impugn the reputation of the late 90s. Just to point out that always lost in the narrative is that there was a bubble forming (which calls into question just how solid things really were), and, when you factor in the IG issue, that the government was potentially misleading in its presentation of the true shape and scope of things.
And with that, thanks for playing.
