National Lubricant

Both the U.S. Government and people are deeper in debt than ever before in their history. Public and private net debt in the U.S. reached a record $883 billion in 1960, the Commerce Department reported last week. Yet for all the U.S. conservative's traditional preoccupation with the dangers of debt, news of the new record was received with monumental calm by that eminently conservative body, the U.S. Chamber of Commerce.

One reason for the Chamber's calm is its conclusion, reported in a 42-page analysis of U.S. debt, that in fundamental economic terms, "we do not appear to be more 'in debt' now than at other times in our recent past." Total debt in the U.S. has more than doubled since 1946--but so has the gross national product, whose parallel growth has kept the relationship of total debt to national production about the same. For those who think the Government is the spendthrift, the growth figures contain some surprises. Since World War II, personal and corporate debt in the U.S. has almost quadrupled, soaring from $154 billion to $582 billion. In the same period, federal debt has risen only from $230 billion to $241 billion, and amounts to barely 48% of the gross national product today, v. 109% in 1946. Concludes the Chamber of Commerce: "If G.N.P. is any partial measure of the ability of the economy to support debt, the present size of the federal debt itself does not appear excessive."

Bridging the Gaps. Even the enormous growth of private debt does not dismay the Chamber, which argues that "economic growth depends heavily on debt expansion." In fact, as any businessman knows, debt is one of the economy's most valuable lubricants. It helps bridge time gaps between the production of goods and their sale, channels savings into productive investment, allows capital to move more freely, and permits greater equality in buying by allowing people to buy against expectation of future income. The availability of credit strongly affects the economic activity of such groups as small businessmen, home buyers, and state and local governments. Out of any million U.S. home buyers, probably no more than 100,000 could pay cash--hardly enough to keep the housing industry alive.

During the postwar years, the consumer's gleeful use of credit for cars, refrigerators and other such big items helped to fuel a prolonged U.S. boom. Now the things that people go into debt for are changing. Housing and car buying loom less important as credit areas; installment buying is expanding much more in such areas as college education and fly-now-pay-later travel plans. Meantime, the Government, whose debt the consumer shares through taxes, is stepping up spending for defense and space.

Pay As You Pay Off. Is the U.S. becoming an over-debted economy? The U.S. Chamber of Commerce does not think so: "Though customers these days do appear to jump readily into debt, they incur new debts at about the same rate they pay off old ones. In a growing economy, we would normally expect some additions to total credit each year."

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