More than is measured
The top graph shows federal government net worth, which looks like it’s plummeting and very negative. But before we scream in panic, let’s try to understand this a bit better. Over the time period shown, the economy, the population, and the price level have all increased. So let’s first adjust the series with one that takes all this into account: nominal GDP. The graph below shows this, and we now see that the net worth of the federal government is about minus three quarters of annual GDP. Still not so good. But is the federal government really in such a precarious situation?
To truly understand this measure, you need to go back to the sources—specifically the Z.1 Financial Accounts of the United States release, Table S.7.a, which at the time of this post ran from p. 176 to p. 178. The very last line is the series we show here. All that precedes that line are the elements that enter into the calculation, mostly financial debts and credits. This explains why the pattern of this series follows the series for the federal public debt. It includes some non-financial assets, such as structures, equipment, and intellectual property, but it does not include land, mineral rights, and the present value of future taxes. Any of these three missing elements in isolation would propel federal government net worth into positive territory. These items aren’t included here because it wouldn’t make sense in the context of the Integrated Macroeconomic Accounts (IMA, hence that label in the legend). But these items should be included to truly determine the full net worth of the federal government.
How these graphs were created: For the top graph, simply search for “federal government net worth.” For the bottom graph, create the first and then use the “Edit Graph” tab to add the GDP (nominal, not real) series to the existing line. Apply formula a/b/10 for the ratio we need, which adjusts the units and expresses the new series as a percentage.
Suggested by Christian Zimmermann.
View on FRED, series used in this post: