So @PrattKap raises an interesting point here that relates to something I've been diving into lately. What is the value of the US balance sheet, and should we seek to maximize it? Want to (accounting) nerd out? Let's go. Thread:
https://twitter.com/PrattKap/status/1414746142311698432
1/ First, it bugs me whenever someone says "we should run the government like a business" and then says we have too many liabilities but can't quantify our assets. We own buildings, land, mineral reserves and a whole lot of other stuff, but don't quantify it. We should!
2/ And until we do, no one can make a credible argument that we have "too much" debt. Maybe we do - but you have to do the math before you can have an informed opinion. Which is to say I've been diving into that issue. #nerd
3/ But to get a sense of why that's hard, go back to @prattkap's question. Even if the US only provides debt, we still get "equity" returns from successful companies - more tax base, fewer UI claims, etc. That has real impacts on the "equity" of the US, even if hard to quantify.
4/ But we still should try! Lots of companies have hard-to-quantify assets. Brand value, goodwill, etc. We have developed accounting rules to quantify them because we want to know if assets offset liabilities. We should also care about that for the federal balance sheet.
5/ The liability side of our federal B/S is fairly easy to define. Debt, social security & medicare obligations, etc. They are huge numbers and - in a vacuum - quite scary.
6/ The asset side - even just focused on tangible assets - is much more poorly defined. What's the value of fossil fuel, minerals, etc. on federal lands? What's the value of Yellowstone National Park? What's the value of the (original) Declaration of Independence?
7/ For the most part, we don't even try to answer those questions. Which means we understate our assets. But now let's look at the intangibles...
8/ How would you value our ability to change the nominal interest rate on the debt we owe? To adjust fiscal and monetary policy to adjust the real interest rate? What is the value of the full-faith-and-credit of the United States?
9/ Those are really freakin' hard questions to answer. But the fact that we have access to such low borrowing costs in spite of our high (?) debt suggests that markets judge those assets to be really valuable.
10/ But now the trickier policy question: should we try to maximize asset value? I have no idea what the answer is to that question, but it's worth grappling with if you believe the government should be run "like a business" and if you have an opinion about the size of our debt.
11/ Consider: if two companies enter into a joint venture, GAAP rules stipulate that only one consolidates onto their balance sheet. (Based on size of investment, who bears the preponderance of risk and other factors). How should we treat public-private-partnerships?
12/ If the federal government invests in state-infrastructure based on an 80/20 state/federal match, who owns the bridge?
13/ These aren't just objective accounting questions. They're policy questions. Is it in the federal government's interest to maximize their equity, or to maximize the equity of US citizens and businesses? Your answer to that question informs your answers to the prior.
14/ These are the kind of questions that make my brain hurt. They make me just want to channel Lloyd Dobler ("I can't figure it all out tonight, Sir. I just want to hang with your daughter.") But as a government, we should try to answer them.
15/ Because until we do, any conversation about whether our country is under- over- or perfectly-levered are utterly uninformed.
16/ Anyway, thanks for triggering some brain-juices, @PrattKap. I have several rough ideas about how to address. Will post more when they get fleshed out a bit. /fin
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