Governments have assets as well as debts. This fundamental truth has been obscured by some of the discussion recently about the growing size of the US national debt as a share of GDP. Matt Yglesias uses Thomas Piketty’s new book on inequality, Capital in the Twenty-First Century? as a point of departure for his discussion of this issue. He writes:
The conventional way for debt scaremongers to measure the national debt is to compare gross public debt to GDP. But the normal way you measure the debt load of a business or a household is to ask for a net figure. Just because you have hundreds of thousands of dollars in mortgage debt doesn’t mean you’re a pauper. In fact it probably means you’re a rich person who owns an expensive house. It is of course possible to take out a large mortgage and then end up “underwater” because house prices decline, but it’s simply not the case that a large amount of gross debt is a sign of overextension. It’s typically a sign of prosperity and creditworthiness.
Yglesias is making a kinda interesting point there, but let’s give some thought as to the nature of the federal assets he is discussing. Sure they may have an impressive book value, but in some cases these figures may be over-inflated or even surreal. Moreover, these assets may not be terribly liquid due to their massively high asset specificity. Indeed, some government assets cannot be sold either to US citizens or to other countries or legal and political reasons. The US government can’t sell, say, Yellowstone or some of its nukes to the highest bidder. In contrast, many types of government obligations are highly liquid– you can see treasuries to anyone, even the People’s Bank of China. So we do have a mismatch between the two sides of the balance sheet.