From a historical perspective, America's current debt problem is much worse than it appears. Current debt/GDP figures are often put in the context of the claimed historical peak: "U.S. federal debt/GDP reached 106%" after World War II. However, wartime GDP was valued at government-controlled prices, which makes the denominator smaller and the World War II peak look larger. Using arguably the best academic estimate of the prices that would have prevailed without price controls produces a World War II peak closer to 86%. After price controls were lifted, annual inflation ran at 12% for several years. That is a main reason that the conventional series drops so rapidly in 1947 and 1948.
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| Sources: FRED; Evans (1982) |
