New Study Argues Assets Are Key to Figuring Debt

IN February 1993, posters at ``Deficit Awareness Day,'' a Concord Coalition-sponsored event at Haverford College in Haverford, Pa., stated: ``Every child born in America today acquires a $16,500 debt in the delivery room.''

In February of this year, Sen. Strom Thurmond (R) of North Carolina reiterated that position when he told members of Congress, ``Paying off this debt would cost every man, woman, and child in America over $16,000 each.''

``This notion is good in that it's alarming, and people need to be horrified about fiscal policy and what it means for our children,'' says Laurence Kotlikoff, a professor of economics at Boston University. ``But basically, each economist has his own debt numbers.''

In its latest briefing paper, the Economic Policy Institute in Washington has come up with a different set of figures. ``The financial health of any individual, business, or government can be assessed only upon review of its liabilities as well as its assets,'' writes Todd Schafer, author of the report.

Based on the Office of Management and Budget's (OMB) 1995 budget, Mr. Schafer figures that, even with a conservative definition of assets, the government's net liabilities per person come roughly to $1,000, not the approximately $17,000 that is typically quoted.

Why such a discrepancy from the more commonly held belief? Schafer calculates that, in 1993, gross federal liabilities stood at about $18,100 per person, representing a nearly 50 percent increase from 1980. Federal assets stood at around $17,100 per person in the same year, representing a 3 percent decrease from 1980. Taken together, federal liabilities exceeded federal assets by about $1,000 per capita in 1993.

Total national assets - comprising physical assets, education capital, and research and development capital - stood at more than $51 trillion, or about $196,000 in assets for every man, woman, and child, according to the OMB.

The problem with this reasoning, Professor Kotlikoff says, is that it doesn't take into account all of the government's obligations. When you examine the government's ``unofficial debt'' - Medicare benefits for the elderly, for example, - the federal debt would be closer to $10 trillion than $4 trillion, he says.

``When you add up all the government obligations, and realize how little the current generation is paying to offset those obligations, you see that the next generation will have a tax burden on the order of 60, 70, or 80 percent of what it earns,'' Kotlikoff says. ``We have a policy that is on a course to bankrupt the next generation.''

Schafer admits that the federal government's assets, net of its liabilities, have dropped dramatically from their 1980 level of $5,500 per person, because the government has not invested the proceeds of its borrowing in productive assets. Although he contends that the rapid rise in federal debt is over for this century, Schafer predicts that federal investment per capita will likely be lower in 1999 than it is today.

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