Questions About Federal Debt Are Serious, but the Wailing and the Gnashing of Teeth over the “$40 Trillion Debt” Are Not (Part 1 of 2)

Did you know that the gross debt of the United States federal government is now over forty trillion dollars? Unless you are just now returning from a “news detox” or have been living under the proverbial rock, you cannot have failed to hear this bit of non-news, which many news outlets have dressed up as an earth-shattering moment of truth. Indeed, if you want to be seen as a savvy and sagacious person, without the burden of actually knowing what you are talking about, you can now simply say the words forty trillion dollar debt while curling your lip and rolling your eyes. You, too, can be mistaken for a deep economic thinker. This is not to say that the amount of federal borrowing in the US is unimportant. Far from it. Indeed, starting with my graduate dissertation and carrying throughout my academic career, I have spent the vast majority of my time thinking about fiscal policy—which is the catchall term for government spending, taxing, and borrowing. Fiscal policy can make or break lives, change the path of the economy for decades into the future, and alter the course of political history. But the implications of fiscal policy cannot be shorthanded into a simple number: “It’s now like forty trillion, knowwhatImean?” And the larger problem is that some very smart people, along with some very powerful people—two groups whose Venn diagrams overlap at best imperfectly—have decided to skew the US political debate by ostentatiously weeping about federal borrowing. They claim to have only the purest of motives to prevent a disaster (on an unspecified date and of an unspecified type), but no matter what they think they are doing, they consistently make errors large and small. Because so much of the public discussion about government debt is either deliberately or inadvertently confused, today’s Part One of this column will focus on the many superficial and definitional issues involved in that discussion. In tomorrow’s Part Two, I will turn to the real-world stakes in this very important conversation about federal fiscal policy. As I will explain below, the gross federal debt is a meaningless number, especially because it is so often discussed entirely out of any meaningful context. But even in the appropriate context, we can say at the very least that the lessons to be learned have nothing to do with impressive-sounding numbers beginning with “t” and ending with “rillion.” An Unfortunate Case of True Bipartisanship: Almost Everyone Has No Idea What They Mean When They Decry the Debt As noted above, there is a well-funded industry of lobbyists and self-styled public intellectuals who continually try to get the public to focus on the supposed dangers of government borrowing. There is no way to know how many of them believe their own hype, or in turn how many know that they are peddling snake oil, but no matter their motivations, their job is to do everything possible to convince politicians and voters that borrowing is always and everywhere bad, bad, bad. On most days, such efforts do not break through into the public’s consciousness. After all, we have plenty of other things that should concern us. But when a nice round number like forty trillion dollars comes along, the debt scaremongers leap into action. To give credit where it is unfortunately due, they have done a very effective job of getting everyone—at least for a few news cycles—to think that something truly scary has just happened. Although the standard political squabble over fiscal policy tends to involve Republicans criticizing Democrats for being profligate spenders and borrowers, during the times when the Republicans are in power (like now), it is tempting for the Democrats to try to turn the tables and say, “See, it’s those Republicans who are hurting our children and grandchildren with all of this debt!” Although I certainly understand the temptation for Democrats to go there, they are making a big mistake, as I will explain in Part Two tomorrow. In any event, it is easy to see the effectiveness of the anti-debt public relations campaign by observing that the conversation has now spilled over into outlets that are not obviously partisan. John Oliver, for example, is rather obviously progressive in his policy views, but his HBO show is not run by or for the Democratic Party. Although it is unclear who does or does not count as a public intellectual, Oliver certainly is one, and he is usually very well informed. Even so, his very first line in this past Sunday’s show was this: “Welcome, welcome, welcome to ‘Last Week Tonight.’ I’m John Oliver. Thank you so much for joining us. It has been a busy week. The national debt topped forty trillion dollars,” before moving on to unrelated comments about Donald Trump and a debate in South Carolina. In other words, the “forty trillion” trope has become so ubiquitous that even the least superficial of commentators could not resist the temptation. Similarly, Harper’s Magazine issues a weekly round-up of news tidbits that are usually tied together in some interesting way. The body of this week’s review, however, began with this: “The United States, whose gross national debt now exceeds $40 trillion, imposed 50 percent tariffs on roughly $20 billion of Canada [sic] goods.” Other than including two large numbers, however, there was nothing at all interesting or useful about that juxtaposition. Even so, one might reasonably ask why such errors matter. Oliver and the editors at Harper’s probably know little to nothing about fiscal policy, but what is the harm? I am focusing on these two examples (out of literally dozens that I have seen in just the past few days) precisely because those two otherwise credible sources jumped at the catnip of excitedly repeating a big, round number that they had heard recently. And again, both of those sources cited the forty-trillion debt number as their very first item in a long summary of the week’s news. The Many Basic Errors of Those Who Pretend to Know Something about Public Debt: or, a Glossary of Fiscal Terminology So the public discussion about the government’s debt has jumped the shark and become nothing more than a go-to “wow” moment. Even so, we might still worry that forty trillion dollars is a lot of money, which might mean that we should ignore the silly posturing by those who know nothing even as we take seriously the underlying issues. That would be great if it could happen, but the reality is that public borrowing is a very complicated topic that requires knowing key differences between similar-sounding terms. And many people who pretend to know more than the Olivers of the world have proved again and again that they do not know what they are talking about. It is therefore essential to run through the key terms of any fiscal policy discussion. Where to begin? (1) Deficit versus Debt (and the Debt Ceiling) One common error is to use the words debt and deficit interchangeably, even though they represent very different things. A debt is the total amount that one party owes to other parties at any given moment, while a deficit is how much money a party borrows in a given year. I could, for example, owe nothing at all—or even be a net creditor—and still run a deficit of $20,000 this year by borrowing to buy a (very old) used car. Or I could owe a large debt but pay some of it down, in which case my debt would still be positive, but my deficit would be negative. The difference between debts and deficits is mathematically identical to the difference between distance and speed. If we asked someone how far it is from, say, Chicago to Detroit, we would be utterly confused if they answered: “45 miles per hour.” Making the error in the opposite direction, if someone asked, “How much money has the government borrowed this year?” it would be flat-out wrong to answer, “$40 trillion.” Even so, allegedly informed journalists and others make errors that are sloppy or worse, such as a headline in this Tuesday’s New York Times: “A Sumerian Solution to Our $40 Trillion Deficit.” To its credit, The Times later corrected the error and replaced “deficit” with “debt” in the online edition, but the point here is that someone who actually knew what they were talking about would never, ever make such a fundamental error. Similarly, as I noted in a Dorf on Law column last week, The Guardian’s editors seem to think that the “debt ceiling” is the same as the “debt,” even though the debt ceiling is a statute that purports to be the maximum amount of money that the US government is allowed to borrow, whereas the debt is the actual amount of money that it has borrowed. The current debt ceiling is $41.1 trillion, but the debt itself is below that amount. (I should add that, as longtime readers of Verdict might recall, Professor Dorf and I have shown that the debt ceiling does not in fact limit total debt. But that discussion would take us too far afield.) Importantly, this seemingly simple error is not the equivalent of, say, using the word “impeached” to mean “impeached and convicted,” which is a common, generally harmless shorthand. If a person says, “Well, I said deficit but I meant debt, no biggie,” they are fooling themselves. Why? To anticipate part of my argument in Part Two tomorrow, one of the serious potential economic concerns regarding federal borrowing (its impact on interest rates) has everything to do with future deficits and nothing to do with current debt. Confusing one with the other is in no way a harmless error. (2) Gross versus Net Debt Another common error in thinking about the US federal government’s debt situation is to conflate (or ignore the difference between) gross debt and net debt. It turns out that gross debt includes any issuance from the US Treasury that obligates the US government to pay money to any entity in the future. That would be unobjectionable except that it includes trillions of dollars that the US government quite literally owes to itself. That is, as a matter of internal government accounting, there are “debts” that one federal agency owes to another federal agency, which means that there is no net change in the federal government’s financial position due to taking on or paying off such ostensible debts. How much money are we talking about? As of this writing, the most recent available data (for August 24, 2026) show that the federal government’s gross debt is just above $40.0 trillion, whereas net debt is just below $32.3 trillion, with almost $7.8 trillion in “intragovernmental holdings” making up the difference. I should also note that the $32.3 trillion in “debt held by the public” in fact is not entirely held by what we would normally think of as the public. For example, the Federal Reserve is a government entity that serves as the nation’s central bank, and it currently holds more than $4.5 trillion of that debt. Does any of that matter? After all, $32.3 trillion still seems like a lot of money, and even taking the Fed’s holdings out, $27.8 trillion also seems like a lot of money. But is it? And how would we know? (3) Debt and Deficits as a Fraction of GDP When a person applies for a loan, the potential lender wants to know whether the debt and its periodic interest payments will be paid, in full and on time. The United States government has never failed to do so, which is why its creditworthiness has been the standard against which riskiness in lending is measured. Even so, the headlines have told us that, as The Guardian put it: “US gross national debt tops $40tn for first time.” So even if we do not know how big is big, we at least know that US gross debt is bigger than it has ever been, right? Actually no, because there is no way to compare raw dollar amounts of debt without putting them in the context of the ability to service that debt. If I were to try to borrow a trillion dollars, I would be laughed out of the bank; but when the federal government tries to borrow that amount, willing lenders line up and happily execute those loans. The difference, of course, is that my income could not possibly support the payments on anything close to a trillion (or in my case, even a million) dollars in debt, whereas the US economy is currently generating income (measured in this context as GDP) of almost $32.5 trillion. This means that gross debt is about 123 percent of GDP, and net debt is about 99.4 percent of GDP. Again, the gross debt means nothing, but what about net debt as a percent of GDP? Is that number meaningfully big? Only by comparing it to other countries and to the US’s own past can we say anything even a bit helpful, but to prevent this column from becoming even longer, I will limit myself to pointing out here that other countries today, and the US in its own past, have in fact had higher ratios of debt to GDP. There is nothing historic about this. Meanwhile, to bring an end to Part One, I will circle back to my original point, which is that people who should know better are using scare tactics to make people worry about the federal debt situation. The best example of this is The New York Times, which has been fully committed to the debt-as-apocalypse story for years. (See, for example, my two–part Verdict column from October 2022: “Why Is The New York Times Giving Front-Page Coverage to Non-News About the National Debt?”) Given that gross debt means nothing, and that even net debt is only meaningful as a fraction of GDP, why would The Times kick off the most recent anti-debt feeding frenzy—the one that had John Oliver and everyone else running in circles—by solemnly announcing that “U.S. Debt Hits $40 Trillion as America’s Borrowing Binge Continues”? The answer, as I explained in a Dorf on Law column three months ago, is that the writers and editors on this beat at The Times are rather obviously cherry-picking their data. When I wrote that column in May, I was responding to a Times article that bombastically announced that the debt-to-GDP ratio had reached one hundred percent, but “Washington barely notices.” All of which means that, when it suits the scare-everyone-to-death agenda, they are perfectly willing to trumpet net debt and to measure it against GDP, but when the gross debt hits a number that can be over-hyped, we are right back to ignoring net debt and acting as though GDP is irrelevant to the story. I should add that those writers and editors are smart enough to cover themselves by adding caveats in those stories, but burying key concepts in, say, paragraph 19 of a 23-paragraph article is the opposite of transparency. Everyone knows that the headline is what will drive the news cycle. Again, however, there are genuine economic issues that are important to understand when thinking about federal spending, taxation, and borrowing. Now that I have made it clear that the news coverage—even (or especially) from the most prestigious sources—is disconnected from reality, I will turn in Part Two to understanding what economic impact federal borrowing might have in reality. It is not entirely a scary story, nor is it an all-clear, but it most definitely is not what most people are being told.