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The Other National Debt
This article originally appeared in the June 21, 2010, issue of NR.


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Kevin D. Williamson

About that $14 trillion national debt: Get ready to tack some zeroes onto it. Taken alone, the amount of debt issued by the federal government — that $14 trillion figure that shows up on the national ledger — is a terrifying, awesome, hellacious number: Fourteen trillion seconds ago, Greenland was covered by lush and verdant forests, and the Neanderthals had not yet been outwitted and driven into extinction by Homo sapiens sapiens, because we did not yet exist. Big number, 14 trillion, and yet it doesn’t even begin to cover the real indebtedness of American governments at the federal, state, and local levels, because governments don’t count up their liabilities the same way businesses do.

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Accountants get a bad rap — boring, green-eyeshades-wearing, nebbishy little men chained to their desks down in the fluorescent-lit basements of Corporate America — but, in truth, accountants wield an awesome power. In the case of the federal  government, they wield the power to make vast amounts of debt disappear — from the public discourse, at least. A couple of months ago, you may recall, Rep. Henry Waxman (D., State of Bankruptcy) got his Fruit of the Looms in a full-on buntline hitch when AT&T, Caterpillar, Verizon, and a host of other blue-chip behemoths started taking plus-size writedowns in response to some of the more punitive provisions of the health-care legislation Mr. Waxman had helped to pass. His little mustache no doubt bristling in indignation, Representative Waxman sent dunning letters to the CEOs of these companies and demanded that they come before Congress to explain their accounting practices. One White House staffer told reporters that the writedowns appeared to be designed “to embarrass the president and Democrats.”

A few discreet whispers from better-informed Democrats, along with a helpful explanation from The Atlantic’s Megan McArdle under the headline “Henry Waxman’s War on Accounting,” helped to clarify the issue: The companies in question are required by law to adjust their financial statements to reflect the new liabilities: “When a company experiences what accountants call ‘a material adverse impact’ on its expected future earnings, and those changes affect an item that is already on the balance sheet, the company is required to record the negative impact — ‘to take the charge against earnings’ — as soon as it knows that the change is reasonably likely to occur,” McArdle wrote. “The Democrats, however, seem to believe that Generally Accepted Accounting Principles are some sort of conspiracy against Obamacare, and all that is good and right in America.” But don’t be too hard on the gentleman from California: Government does not work that way. If governments did follow normal accounting practices, taking account of future liabilities today instead of pretending they don’t exist, then the national-debt numbers we talk about would be worse — far worse, dreadfully worse — than that monster $14 trillion–and–ratcheting–upward figure we throw around.



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