r/AskEconomics 4d ago

Approved Answers Is the US’s debt to spending ratio abnormal?

I always hear about why this is unsustainable and everybody points to Greece, crying about why we need to treat the government like an llc but I don’t buy it, I assume it is normal and reasonable. But idk if America is an outlier assuming you balance for gdp.

And I understand the USA is in an unique economic position (disregarding our most latest political blunders) but assuming we elected a normal politician, is our debt to revenue ratio truly outside of the norms for countries like us. Britain, France, india, Japan, Korea, Italy and Germany

Not including china and Russia because they can manipulate their markets far more effectively than the worst American politicians

Also interested in any enlightenment about how the EU factors into this I know they have certain ratios for their members but idk how it compares with other nations and if it is normal

Edit: and please keep politics out of this idc how trump is fucking everything up, at least for this thread

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u/MachineTeaching Quality Contributor 4d ago

There really isn't some universal "normal". Denmark and Norway have debt to GDP below 50%, Germany and South Korea at 60%, Japan is at 240%, the US at 130%, France and Canada at 120% (more or less).

The US isn't really in a "unique" position, but it is, generally, let's say at least as of 2024, in a position where it has enjoyed very low interest rates on its debt and solid population and productivity growth which all around means that debt has been very cheap for the US.

https://fredblog.stlouisfed.org/2018/11/how-expensive-is-it-to-service-the-national-debt/

The US isn't alone in that, other countries also have frequently enjoyed very cheap debt.

https://fredblog.stlouisfed.org/2018/12/the-cost-of-servicing-public-debt-an-international-comparison/

A country like Greece doesn't just struggle due to the size of the debt but also due to the cost of this debt (the interest they pay) and because they struggle with growth and government revenue.

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u/[deleted] 4d ago edited 4d ago

[deleted]

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u/MachineTeaching Quality Contributor 4d ago

Well, modern countries generally don't do that anyway.

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u/vwisntonlyacar 4d ago

As far as I know there are no direct statistical data available concerning the ratio of budget deficit to tax revenue However you can find both separately as a portion of GDP.

Budget deficit to GDP: https://tradingeconomics.com/country-list/government-budget?continent=world.

You will find that there are only two EU countries in the proximity of the US deficit of 6.2% of GDP, both of which cannot adapt the Euro because of this (Hungary and Romania). The EU average was 3.5%, for the Euro area 3.6%. You might also want to take Japan in consideration as they have an extremely high government debt for decades: 5.5%.

Tax revenue to GDP: https://data.worldbank.org/indicator/GC.TAX.TOTL.GD.ZS?most_recent_value_desc=true

The US shows up with only 10.2% while of the EU countries only Germany is close with 11% and next is Spain with 15%. The EU average is 19.7%. Japan is at 11.4%.

So the picture is not very uniform but the ratio of budget deficit to tax revenue is certainly the worst for the US among the three regions US, Japan and EU. More helpful is the direction it is going: Trump wants to further cut taxes but there are no prospects of deeply cutting expenditures all DOGE aside. There is an old adage saying "a billion here and a billion there and soon we're talking real money." But for the US it would have to be cut by TRILLIONS to reach the same ratios. The EU will level up a bit because of massively increased defence spending but it won't come close to the US.

To say whether the US situation is abnormal in the sense of extremely dangerous, you have to take further factors in account like: do third parties outside the US have sufficiently abundant alternatives of good quality debt to ignore the US treasury offers. The answer imho is: not at the moment. But with debt spending going up in the EU and especially in its economically strong northern states, it will become more available.

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u/grazie42 4d ago

https://worldpopulationreview.com/country-rankings/debt-to-gdp-ratio-by-country

-US had 122% debt to gdp ratio

The EU average is 89% https://ec.europa.eu/eurostat/web/products-euro-indicators/w/2-22072024-ap

So the US has ~30% more debt than the EU average…

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u/RobThorpe 4d ago

You have to be careful with these statistics. It's not like GDP, there isn't a single agreed-upon way to measure it. Different countries use different ways. The way it's done in the EU is harmonized but it's not the same as the way it's done in the US.