Ratios Matter

The Coming Tax Bomb outlines the problems with allowing the expiration of the “Bush tax cuts”, but that’s not why I bring it to your attention. This is what struck my eye:

Last year’s federal budget illustrates the importance of economic growth to the federal budget’s overall health. The federal budget deficit was recorded as 1.2% of GDP, half its average level over the past four decades.

Despite everything you hear about the terrible federal deficit, the ratio of debt/GDP seems pretty safe. It is, of course, the ratios that matter. Ratios give perspective. Raw numbers, by contrast, are handy for raising alarm or causing celebration, but raw number give no perspective.

If we heard more ratios and fewer raw numbers, we’d probably have different opinions and make different decisions.

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