Tuesday, January 28, 2014

The Real State of the Union - 2014 Edition

As I have done in the past, I like to post a non-political, realistic version of the real State of the Union, just in time for the Presidential summary.  Generally, I think that a few graphs give us the general idea of what has happened over the past year since the last address.  In this posting, I'll look at two main issues; income inequality and the federal debt and present a few graphs that illustrate the real state of the union.

The President has recently been focussing some of his efforts/talking points on income inequality.  To that end, here is a graph showing the share of labor compensation in GDP, telling us how much of the nation's total income is going to laborers instead of capital-holders:

The 2011 level of 62.2 percent is just above the lowest level seen since 1947 that was seen in 2010 and is well below the level of 65.4 percent in 2000.  To at least some degree, the decline can be attributed to increased competition from imports; as an industry faces greater competition from imports, the share of income going to labor drops.   There's nothing like sending jobs overseas!

In contrast, here is a graph showing the increase in after-tax corporate profitability since 2000:

Since 2000, corporate profits have risen from $529 billion to $1.7087 trillion in the third quarter of 2013, an increase of 223 percent.  That's a compounded annual growth rate of 9.4 percent, more than twice the rate of inflation.

Here is a graph showing the growth in the share of corporate profits in GDP since 2000:

The corporate profit share of GDP has risen from under 5 percent in 2000 to its current level of 10.1 percent, more than doubling over the 13 year period.  Interestingly, as shown on this graph, the corporate profit share of GDP is now very close to its highest level since 1947:

These graphs show us that corporations have benefitted over the past 13 years while laborers have not.  The White House definitely has its work cut out on the issue of income inequality.

Let's switch gears and look at the current federal public debt situation.  Here is a graph showing the growth in the total federal public debt since the President Obama's first year in office from data on the Treasury's Debt to the Penny website:

When President Obama did his first State of the Union address, the United States had $12.302 trillion in federal government debt.  This year, that figure will have risen to $17.261 trillion, an increase of $4.959 trillion or 40.3 percent since his first speech to the nation.

Here is a graph showing the ratio of publicly held federal debt to GDP since 2000:

Between the beginning of 2000 and the middle of 2007, the debt-to-GDP ratio hovered between 60 and 62 percent.  This ratio has risen alarmingly since the beginning of the Great Recession, and is now sitting at 98.97 percent, just below its peak of 101.4 percent in the first quarter of 2013.  To say that the current debt level is in the danger zone is an understatement.  Keep in mind that part of the levelling off in the debt-to-GDP ratio is due to an expanding economy and part is due to cuts in spending, thanks to sequestration.  If economic growth begins to slow down or the economy begins to contract, unless Washington makes meaningful cuts to spending, the debt-to-GDP ratio will once again begin its march toward the heavens.

Lastly, there is one key factor that is helping Washington reduce its overall expenditures, a factor that is likely to be transient if the Federal Reserve has its way.   Here is a graphic showing interest payments on the debt in billions of dollars and as a percentage of total federal outlays:

While the current level of interest payments on the debt are low by historical standards, this graphic shows why:

With average interest rates on the debt at 13 year lows, one can only imagine how quickly the fiscal situation could become critical when interest rates rise back to their 13 year average of 5 percent.  That would push annual debt interest payments up to the highest levels ever seen, straining Washington's ability to reduce both deficits and the growth rate of the federal debt.

While the White House uses the State of the Union address to pat itself on the back for its accomplishments and makes a few motherhood statements about where it wants to head, a few graphs can easily tell us where Washington has failed and how much work lies ahead.


  1. Question if you purchase public debt at 2% are you locked in at that rate or does the % you gain on the purchase increase as the interest rate goes up?

  2. Effective statics! I read your full article and update myself.Thanks for share this.

    Chiang mai rentals