National Net Worth and Post WW2 Presidencies

Great Debates
#1

I came across an article talking about the total net worth of the United States, coming to the conclusion that the US has a balance sheet $188 trillion. And in this article, the author made the following point which I found rather interesting:

To get this information, John Rutledge (the author) started with the quarterly Z1 - Flow of Funds Report published by the Federal Reserve every quarter, which includes a balance sheet for the entire country comprised of US assets and liabilities, personal, corporate, and government, compiled at least yearly since 1948 (and quarterly starting in 1950). Mr. Rutledge goes on to explain why he thinks Z1 is incomplete - a good start, but incomplete - but that’s beyond both the scope of this OP and the efforts I want to put into this right now.

Regardless, financial growth is defined by having a strong balance sheet where assets exceed liabilities (and this spread increasing, i.e., you’re becoming “richer”)… and focusing on such metrics like GDP, the DJIA, the national debt without context to the larger picture of how these things affect the overall national wealth is, at best incomplete and, at worst, dangerous. For example, most reporting about the national debt largely ignores what the debt is being used for - it’s just assumed that it’s “wasted”, that this money somehow disappears, and that the effect of $17 trillion in debt is an automatic $17 trillion hole in our wealth with no benefit on the asset side. Nobody has ever proved such a thing - for tens of millions of Americans, it’s just a given.

For example, I hear charges of how “Obama exploded the national debt” (or Reagan, to name the debt bogeyman for each party) with the implicit (and stated) assumption that all balance sheet impacts of debt is negative… but even in our world, that’s not true. I take on a $100k mortgage to buy a house worth $150k… well, I’m up $50k, right? If I borrow $40 million to build a hospital… once built, I’ll have a hospital to add to the balance sheet as an asset to counter the debt, and hopefully one where the income of the asset vastly exceeds the costs of carrying and retiring that debt.

So I got to thinking that tracking changes in the Z1 national balance sheet might be an interesting exercise, especially in this upcoming campaign season. Which President did better at increasing America’s net wealth, which President’s did worse… questions like that. Since these figures include stock market holdings, housing values, tangible assets, debts (govt, household, corporate), pretty much the whole kit and kaboodle, it should be a pretty good test as to how our post-WW2 Presidents (and, perhaps, parties), have done in their number one job - increasing the wealth of the Nation.

And, being who I am, I put a spreadsheet together (link below) with the quarterly Fed data on our National Balance Sheet and compared how this metric grew under both Presidents and parties. And what I found was interesting:

… Adjusted for inflation, the national balance sheet of the US grew from $9.1 trillion in Truman’s re-election year (1949) to $78.2 trillion today (Q3, 2015)

… The President with the best year-over-year impact on the wealth of the country was Bill Clinton: total National Net Worth (NNW) increased by $18.8 trillion (ranked 2nd), with total % growth of 48.64% and annualized growth of 5.08% (beating out all other Presidents on this scale.)

… The worst Democrat at growing NNW, Jimmy Carter, increased NNW by 10.05% (2.42% annualized) - but that was still better than four Republicans: Nixon, Ford, Bush 1, and Bush 2.

… Surprisingly, Ronald Reagan sucked at increasing NNW compared to his reputation of economic wizardry. While overall NNW grew by 25% in his eight years (good enough for 4th place), annualized he comes to an anemic 2.85% (8th place, barely ahead of Carter).

… Not that we need any more proof, but Bush 2 was a horrible President. Easily the worst at growing the wealth of the nation, total NNW growth under Bush 2 was $641 billion, an annualized growth rate of .14% and overall growth of 1.09%. To put this in perspective, if you double W’s contribution to NNW and add $200 billion to that figure, you would still come up short to the 2nd-worst President at growing NNW - his father, GHWB (who had only 4 years to get a $1.465 trillion addition, compared to his son’s 8yrs and $641 billion).

… Obama’s doing pretty good. In sheer dollar terms, his administration has seen the greatest rise in national net worth since WW2 - over $19 trillion (30 X better than W). Overall, the 34% growth in NNW is the third best since WW2 and his 4.42% annualized growth ranks him better than every Republican excepting Eisenhower. Of course, these aren’t final figures for him - he still has 1 year and 1 quarter to complete.

… Eisenhower is the lone shining star in this regard for the Repubs. A 5.06% annualized growth rate is barely behind Clinton’s 5.08%, as is his 48.46% total growth. I like Ike!

… Comparing annualized growth in NNW, 5 of the top 6 occurred under Democratic administrations, while 5 of the bottom 6 occurred under Republican administrations.

So what do you think? Is this a valid way to measure the economic impact of Presidencies? Is it too broad a view, or too limited? What do you think about this type of measurement viz more traditional comparative metrics such as GDP, debt levels, etc? Does this say anything about the relative worth of the economic philosophies of the two parties? Any other thoughts?

Link to Fed Data: http://www.federalreserve.gov/datadownload/Choose.aspx?rel=Z1 I selected Chart B.1 Q Derivation of US Net Worth n.s.a. (whole series, from 1948-2015Q3).

Link to my spreadsheet (Google Drive, which removed much of my formatting (thanks! :rolleyes: ))

(If this isn’t debatey enough, feel free to move, of course.)

#2

Nothing? Should I have put this in Elections? :wink:

#3

OK; here are some of a layman’s musings.

Considering wealth in addition to income gives an important new perspective, but raises problems. What is the wealth of Coca Cola Company: their tangible assets, or the value reflected by their stock price? Your link uses personal worth, so stock prices, and thus reflects any “irrational exuberance.”

It is true that booming (or bubbling) asset prices both reflect and cause confidence and thus are good economically. It doesn’t follow that the FRB should keep interest rates low forever and let stock market or housing-price booms party indefinitely.

Instead of just personal wealth, it might be instructive to consider national wealth. If you evaluate the huge value of national assets, e.g. highway system, national defense, etc., the huge debt won’t seem so bad. Certainly Ted Cruz’s plan to pay off the national debt by selling all Federal property to the highest bidder would be recognized as a sick joke.

Income figures, rather than wealth, are more reliable and better indications of what’s actually happening and changing in the economy. Still, I’m sure wealth figures have useful roles to play.

#4

That was my reaction as well - was Clinton great, or he just happen to be in office during the dot-com bubble? Was Bush II terrible (in this one area), or did he just happen to be in office when that bubble burst? Considering the very limited power the President has over the economy in the first place, I don’t know that the rankings/apportioning of blame have value, but the whole concept does.

#5

You should first explain how you apply the balance sheet company accounting concept to a nation state. Although company analysis at least has aspects more comparable to the state than the household, I do not know that the concept of the balance sheet is transferable without reflection.

It is standard in the macro-economic analysis internationally to make a distinction between government spending as investment - typically but not solely for the infrastructure but in any case for asset creating investment - and government spending for current consumption.

This is not new, although it seems to be something that in the USA if this board is any judge, people are ignorant of. Or ignore. But it is quite a typical analysis that the agencies like the IMF do.

Why do you not look at the more typical macro-economic analysis done by the IMF, the World Bank etc.? It is more usual to make analysis on debt to GDP and GDP per capita with both in relationship to potential carrying capacity as the effective collection rate of taxation. Undertaking this in a vacuum seems strange.

the phrasing in the data is net wealth.
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#6

Essentially the OP’s getting at the idea that not all debt is bad. Debt that ultimately generates wealth is considered “good”- stuff like mortgages, student loans, and other loans for things that appreciate in value are all good debt.

Bad debt is debt incurred for the purchase of things that decrease irrevocably in value. A car loan is considered bad debt in the sense that the car is never going to actually be worth more than you originally paid for it, even if it is a necessity for daily life. No amount of intended purpose warm-fuzzies will ever make it good debt.

Something similar has to play out on the national arena- not only is all debt not necessarily bad, but there needs to be a better way to identify the amount of appreciation in value that comes from the good debt that the nation takes on. For example, any debt incurred during the Eisenhower administration for the building of the Interstate Highway system would certainly be considered good debt.

The problem is that the popular media merely looks at the magnitude of the number, and not on WHAT the debt is incurred for. It’s like looking at two families- one in debt to the tune of say… 150k, and another in debt for 75k, and proclaiming that the 150k family is worse off, when in reality, the 150k family has a mortgage and 2 student loans composing their debt, while the 75k family has a new boat, a new car, and a couple of new TVs making up their debt. In reality, the second family’s debt is light-years worse than the first ones, even though the magnitude of the first couple’s family’s debt is twice that of the second.

#7

This analysis is faulty and almost as bad as what you complain about. A car debt is not “bad” although it may not be a wealth building - an economic analysis requires knowing the return from the car ownership not just a physical asset depreciation relative to a resale.

and further the taking on of a mortgage for a home is not a automatic good debt, for this depends on the economic value also of the home as a service that is a net of its costs. the carrying cost of the home can very well be more than its use value

the national analysis is typicall one that is made on the “productive assets” investment versus the non productive assets. it is worth noting that when we do this, we do not consider home building as essentially productive. it is a simplification but a useful one.

Good debt and bad debt must be avoided.

Productive and non productive or investment and consumption are better.

#8

I was just simplifying the idea- essentially it’s the idea that the number value of the debt doesn’t tell the whole story- some of that debt was incurred for reasons and projects that generate wealth, while some of it was just essentially thrown down the toilet on things that neither generated wealth, nor produced appreciating assets for the country.

And car loans are always bad debt in the sense of that car is always going to depreciate, just like homes are expected to grow in value. Whether or not you get more out of that car than you borrowed doesn’t have a thing to do whether that debt was good or bad- that’s not what that usage of the term means.

#9

No, car loans are not always “bad debt.” This is a completely incorrect economic analysis and even it is a mostly incorrect household analysis.

Bad debt in the banking means a non servicing debt. That is all.

In the economic analysis, there is no concept of “bad debt”, there may be productive or non productive.

The fact of a depreciation of a physical asset does not make a thing ‘bad debt’ in the economic analysis (and also the possible appreciation of the house does not make it a good debt) - it may be a bad investment if the productive value achieved from the asset is less than the cost of the financing, but this is a dependant analysis.

the only fashion in which the analysis of a car debt as a bad financing choice is where the it is supposed that the car is purely a consumptive good, not enabling any production of income (even then it must be compared to the alternative costs of the transport) or if one strangely is trying to think of a car as an investment asset itself.

#10

This suffers from the fallacy that the president is in charge of the economy. He is not. He is in charge of one part of the federal government, the largest government of hundreds in our country. Bill Clinton did not create Microsoft or Apple, why does he get credit for their huge stock valuations?
All this data says is that presidents who start their terms at a low point in the business cycle have better growth numbers then those who are unlucky enough to start their terms at a high point in the business cycle. Bill Clinton took office 9 months after the end of a recession and nine months before the start of another one. If presidential terms started in different year then his numbers would look totally different.
This is the same type of thinking as having a lucky hat that causes your team to win games. Hats don’t win games and presidents don’t control economies.

#11

Economic trends have causes. The President may have relatively little influence, but he has more influence than any other single individual including the person holding the over-glorified Chair of the Federal Reserve.

And your comment suggests that business cycles have predictable life cycles, or are even periodic. If this is really true, tell us about the tens of $millions you’ve made timing the stock market! :dubious:

#12

Depending on the circumstances the Chairman of the Federal Reserve may have more interest but compared to the cumulative influence of the other 318 million americans, both their influence is tiny.
My comment does not suggest the business cycles are predictable only that they are obvious in retrospect. If I had a time machine I could do very well in the market.

#13

As a technical matter, the article linked in the OP seems to be double-counting, by including both personal and for-profit corporate assets. All such corporate assets are ultimately owned by individuals and would already have been counted in that number.

More generally, the author is making the argument that the national balance sheet is so large that governmental fiscal policy is inherently an ineffective macroeconomic tool. This is a standard monetarist argument, seen most recently in the debate over the stimulus (which is ultimately what this author was addressing).

The OP is using the article’s calculation for precisely the opposite purpose, as a comparison tool for assessing the effectiveness of the fiscal policy of various administrations. The article’s author would certainly object to this use of the data as fallacious.