I am an avid wood worker and work very hard to make sure that everything that I make is very accurate. I buy only the most accurate measuring tape or rulers. I use a very sharp pencil so that all my cuts are right on the money. Can you imagine what my wood working projects would look like if I did not use an accurate measuring tape? Well, that is exactly what we have when it comes to understanding the "National Debit". All the charts that we see are based on "dollars", but we know that a dollar today is not worth as much as a dollar was some years ago. The dollar is like a rubber yard stick. If that is the case, how can we make sense of the value or cost of anything? Constant Dollars.
Constant dollars is a concept that uses a dollar that has the same value over time. That means that if a loaf of bread cost $1.00 in 1950, with constant dollars it still costs $1.00 today. Our own Treasury Department compiles a chart that shows the value of a dollar over time. We keep hearing about how the national debit went up under this or that President and now it is at an all time record. If everyone is using a rubber yard stick, how can we tell who is correct?
Here are the numbers corrected in terms of constant dollars.
Year Constant $ National Debit Corrected Debit
1950 $9.08 $256 $2,324
1960 7.39 291 1,150
1970 5.64 381 2,149
1980 2.66 909 2,418
1990 1.67 3,209 5,359
2000 1.27 5,629 7,149
2010 1.00 14,025 14,025
What you see in the above numbers is that the national debit doubled from 2000 to 2010 rather than triplied as reported in the News. Notice also, that back in 1950 we had a national debit that was 9 times as big as what is being reported. Next time you see talking heads on TV report on national debit, think about what the numbers would look like if they were reported in constant dollars rather than with a rubber yard stick.
You can apply the constant dollars concept to anything. A home in 1950 would cost 1/9th as much as it would today. We are talking about the same house.
