eli5: Why is the US commonly called the “wealthiest country” if we have 30T in debt?
In: 5
The wealth of a nation is quantified by its gross domestic product per capita, which is equivalent to to the average income taken home by a person in the country. U.S. GDP per capita is the highest in the world with exception to some very small states which are tax havens (e.g., Switzerland), and countries which have immense oil stores and are small (e.g., the Nordic countries). For a large, ethnically diverse country, there is no richer country out there. For comparison, France has the per capita GDP equivalent of West Virginia, which is considered to be a relatively poor state in the U.S. People just don’t realize how much richer the U.S. is than even other rich developed countries.
The $~20 trillion number refers government debt, which is indeed relatively high in absolute terms. But generally speaking GDP-Debt ratios up to ~100% are actually fine. We’re starting to push the limits and we should have a plan for long-term debt reduction, but in the short-run we’re fine. And as others have mentioned, what really matters for the short-term is the interest rate the government pays on that debt, because that determines how much the government is obligated to pay out each year. U.S. debt is extremely cheap – investors are willing to loan the U.S. government very cheaply because we have never once missed a payment, **because** our GDP is extremely large (2021: U.S. GDP was $23 **trillion**), and because where else are they going to put that money that’s as low risk?
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