Paul Krugman recently dismissed concerns about America’s large international debt. “America’s debtor position,” he writes, “isn’t actually that deep, because of capital gains.”
When Krugman talks about “America’s debtor position” he is referring to the net international investment position (NIIP), which is the difference between the value of the U.S. portfolio of foreign assets and the value of the foreign portfolio of U.S. assets. Krugman demonstrates that the NIIP is fairly flat over the period 2002 to 2010, which presumably shows that concern over U.S. debt is uninformed or disingenuous. Or does it?
As with Krugman’s “Icelandic Miracle” posts, his conclusion is just an artifact of the starting and ending dates he chooses. In today’s Geo-Graphic above, note what happens to the trend line when Krugman’s data are brought up to date – adding the data, which he had easy access to, for 2011 and 2012. Now, the trend is decidedly downward – considerably worse than his.
And what about when we back up the starting date to the mid-1980s, as we do in our graphic? Now we can clearly see the effect of Krugman’s chosen data period – it wipes off the steep decline in U.S. NIIP before 2002 and after 2010.
Note that in 2009 the U.S. portfolio of foreign securities, which is riskier than the foreign portfolio of U.S. securities, outperformed the foreign portfolio by such a significant margin that the NIIP shrank by nearly $1 trillion – this despite the fact that foreigners continued to buy more assets in the U.S. than the U.S. bought abroad. This is captured in Krugman’s data. But in 2011, which Krugman leaves out, this U.S. outperformance was reversed and then some: the NIIP deteriorated by a whopping $1.6 trillion, bringing the NIIP to a record negative $4 trillion. It continued further down to a record negative $4.4 trillion in 2012.
Which all goes to show that not all graphics are as reliable as Geo-Graphics . . .
Krugman: America the Debtor
Wall Street Journal: For U.S., Big Foreign Investment Is a Mixed Blessing
Chart Book: Foreign Ownership of U.S. Assets
BEA: Quarterly and Year-End Update on U.S. Net International Investment Position