Is Real U.S. Debt Figure $211T -- not $14.3T?

Adam Gault/Thinkstock(WASHINGTON) -- With the U.S. debt dragon slain -- at least temporarily -- legislators in Washington and money managers around the world breathed a sigh of relief Monday, after Congress, in intense weekend negotiations, seemed finally to have agreed on a solution to the $14.3 trillion debt ceiling crisis.

But is their celebration premature? What if the nation's attention had been focused all this time on the wrong number? What if U.S. debt isn't $14.3 trillion, but bigger by a factor of 14?

Bloomberg BusinessWeek, in its current cover story "Why The Current Debt Crisis is Even Worse Than You Think," argues the true measure of U.S. debt ought to be the so-called fiscal gap. That's the present value of the difference between the nation's total revenues and its total obligations. That comes to $211 trillion.

For Congress, as it tries to thread its way out of the nation's debt crisis, to be focused on the smaller number is like a driver "using a map of New York to try to drive around L.A." So says Boston University economist Laurence J. Kotlikoff. The BusinessWeek piece showcases the work of Kotlikoff and fellow economist Jerry Green of Harvard.

The two men, in an academic paper titled "On The General Relativity of Fiscal Language," make a simple point: Debt is in the eye of the beholder; you can define it any way you want. Washington's $14.3 trillion figure excludes things politicians find it inconvenient to call debt, such as the future obligations of the Social Security system. But just because those obligations aren't called debt doesn't mean they don't have to be paid. The present value of these and all other U.S. obligations make up Kotlikoff and Green's $211 trillion figure.

Even if Congress and the president could agree to run a balanced budget, making this year's deficit "officially" zero, says Kotlikoff, "the nation's true indebtedness would still rise by $4.15 trillion."

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