The amount of U.S. debt per person has ballooned by more than a factor 50 in the past 90 years. This tremendous increase of inflation-adjusted federal government borrowing was explained in a post on Monday. But as some readers noted, real income has increased as well over the years. If you take rising incomes into account, does the picture look any better?

Considering income does make the U.S. debt level look a little less catastrophic, but still pretty ugly in a historical context. Here's a chart showing the inflation-adjusted debt per person line from Monday (in red) along with the ratio of Americans' personal income and U.S. debt (green):

personal income to us debt 2011-05.png

I should note a few things about this new curve. First, you don't need to adjust for inflation or population, because both of those units will drop out when taking the ratio. This chart also only shows the ratio since 1929, since that's when the Bureau of Economic Analysis begins its personal income data (it also starts annually, moves briefly to quarterly, and then to monthly in 1959).

For starters, what does this ratio mean? It represents the number of times Americans' annual personal income could pay off the national debt. For example, if the ratio is three, that means that Americans earned enough income during the year to have paid off the national debt three times. Put another way, the national debt amounted to one-third of total personal annual income.

We can learn a few things from the chart. First, where this chart begins, Americans' income far exceeded the amount of U.S. debt outstanding. In 1929, Americans' annual personal income could have paid off the nation debt five times. This number began to quickly decline in the 1930s, probably due to the Great Depression. But the ratio still stood at around two until World War II.

But the war increased the nation's borrowing and the ratio shrunk all the way to 0.66 in late 1946. It then steadily rose, however, as the nation dug out. It peaked near three in the early 1980s, but then again began to decline as deficit spending ramped up. It appeared to plateau near 1.25 in the late 1990s, even rising to 1.5 in 2000. Then, it began to fall again.

The ratio dipped below one in early 2010 for the first time since 1951. Of course, at that time the ratio rose as the U.S. got its fiscal house back in order after World War II.

As of May 2011, the ratio was 0.92. In other words, based on the month's annualized rate of earnings, even if you took all of Americans' personal income for the entire year, you would only pay off 92% of the national debt. This would include all of the money earned that is eventually taxed, spent, and saved by the American people.