Sunday, September 6, 2009

Asset Side of the Government Balance Sheet

We continue to be bombarded with endless reporting and non-stop commentary that casts the public debt in a very negative light. This echo chamber of doomsday warnings, and policy recommendations for austerity threaten our American economic future and the quality of life we can ultimately achieve.

Mike here and others have often pointed out that outstanding U.S. Treasury securities and other state and local Government securities represent only the value of the "liability" side of the public balance sheet, and for perspective, objective observers should compare those liabilities to any public "assets".

One of the most visible public asset classes is our U.S. system of roads, highways and interstates. On this Labor Day weekend, let us look at these tremendous public assets that stand as an operational monument to the U.S. worker. What could be the value of these assets? How does that value compare to our public liabilities? Here's a shot:

The construction cost models I found differentiate between Rural and Urban costs and call out a "LOW" and "HIGH" cost to establish a range for estimators. My LOW value you can see is $8.7T and the HIGH is $29.9T. The Fed's latest Z-1 is clipped below and indicates that total Federal borrowings are $6.36T and State & Local borrowings are $2.23T , for a total of $8.59T of public borrowings.

So if one was concerned about our public debt to asset ratio, you can see from this (albeit quick) analysis that total public debt outstanding may not even be "financing" the current replacement value of our country's highways and roads. The remainder of all public assets could be considered more than paid for (think: water, electric transmission, health, defense, public safety, I could go on and on). My question then becomes: ARE WE UNDER LEVERAGED? I think we are; and I think we are tremendously over-taxed "to pay for it".

Notes: I got the total for U.S. lane-miles here. The data for the HIGH/LOW, Urban/Rural construction costs for the Interstates and Other Arterials came from here. I've made an assumption that Collectors would cost 50% of the actual highway, and that Local roads/streets would cost 10% of the Collectors (this may be quite a lowball if you include the underground utilities and hookups as part of the Local street construction costs).


Mike Norman said...

Matt, another great example of you "digging deep."

Another asset of the government that cannot even be quantified, I don't think, is its investment in public education. Imagine if we did not have that or a G.I. Bill or any of the investment the gov't has made in education? It would have meant a much lower level of productivity from the "human capital" of the nation. Think of all the inventions, innovation and productive endeavors would not have been possible without the government's support of education.

Matt Franko said...

Thanks for the comment.

If I've overestimated the values I hope someone else perhaps more informed would comment here.

I was listening to Fox the other day and they reported on another Town Hall altercation last week where a 60+ year old man got his finger bitten off by a person he got into a fight with. Fox played the audio 911 call where someone who found the finger called and wanted to get it to the hospital...this is really getting out of hand as you predicted...our society is disintegrating right before our eyes.

We need a BIG tax cut and fiscal for the States as Warren and you advocate for., Matt

The Joker said...

Yes, Matt, we need a BIG, BIG tax cut. Unfortunately, our government leaders will say we cannot afford such a tax cut or additional spending.

I'm not encouraged about the future of this country for my generation or my kids.

googleheim said...

Shishkabob or Souvlaki - doesn't matter still non-sense.

Mike Norman has always consistently differentiated between good and bad debt -

good - that which increases capacity, capital, and legitamate businesses.

bad - that which supports wall street firms which do nothing to contribute to the good stuff - like femto-second trades and / or bailouts for zombies.

Now, getting back to Ishkabob's purging - this urge to purge or to purify the system via creative destructive republican't techniques is insipid.

We remember what happened during the 90's when Newt Grinch tried to shut down Barney & Sesame Street or Tom Delay suggested that the Dept of Education was unconstitutional - the urge of creative destruction is anti-USA.

Sure they cleared up the debt but the dollar spiked which is anti-thetical to the other republican't urge to purge by exporting, but which requires a low dollar policy !!

Republican'ts are inherently contradictory.

With more and more folks finally getting in paradigm such as Floyd Norris, it will only be a short time when we realize why the historical shows of Frischberg and Lauffer are not available on an indexable podcast - because they constantly change and cover up their shannigans.

jimbo said...

Actually, if you are just talking about the federal governement's "income producing assets", all you need to do is note that it has about a 30% first claim on all profits of U.S. firms - not to mention a cut of every worker's pay. Basically, any time money changes hands a large percentage of it ends up in Federal coffers, without any particular fuss. it takes a large effort for it to spend enough money just to jeep up with all the money it's destroying, just by normal everyday transactions.

Matt Franko said...

Jimbo, Yes

These roads are just like "fixed assets".

"all you need to do is note that it has about a 30% first claim on all profits of U.S. firms"....Try discounting that to PV! That would be a big # too... Matt

jimbo said...

Matt -

And of course, that's why we get these absurd projections that show the government "going bankrupt" - they don't take into account that all those expenditures lead to taxable income, both directly (Government workers, contractors and even collectors of interest payments pay taxes too!) and indirectly, as they in turn buy things that create new taxable incomes and profits.

It's like someone fretting about the heart being in danger of "running out of blood", because it keeps pumping it out into the arteries, without realizing that it all has to come back via the veins...

Mike Norman said...


Great analogy!