The author takes a CPA's view of public finance and makes some often-overlooked points about the issues, such as that US assets are many times US debt and that the economic prospects of the US are stronger than other countries' and seem to be more than adequate for current and foreseeable challenges.

While this is a valuable counterpoint to many conventional discussions, it contains some distortions of its own, which the author does not discuss. Constructing a balance sheet for the US as if one person or entity controls it misses some important point. For example, it may be true that total debt is only a third of assets, which represents a 0.5 debt-to-equity ratio considered prudent for many private companies.

But imagine if the US tried to pay off all public and private debt with a 50% tax on net worth, as a private individual with that balance sheet could do (selling one third of assets and paying off all debt). Not only would the tax be politically unthinkable and impossible to collect, the attempt would destroy the economy and asset value would plummet to much less than the amount of debt. The assets consist mainly of going concern value in a robust economy--anything that disrupts the economy causes the value to evaporate.

This is why debt as a fraction of GDP is important as well as debt as a fraction of assets. The author criticizes the former measure, but debt has to be serviced with GDP (perhaps a small wealth tax is practical, but not one that could raise the funds of an income tax). Contrary to his assertion, it is common to take ratios of balance sheet and income statement items such as return on equity or free cash flow to debt.

If you think Congress would never devote more than 5% of GDP to debt service (I just made that up, I have no idea if it's the right number, but it's hard for me to imagine much higher debt service in the current political climate), then debt of 100% of GDP creates a problem if interest rates on government debt increase beyond 5%. Congress might default, or worse, attempt to solve the problem via massive increase in the money supply (that would anger creditors more than a negotiated default, and trash the currency and private contracts). It also means a 2% increase in interest rates wipes out all GDP growth, and that creditors will start to get nervous as interest rates increase, leading to additional increases, leading to additional fears. I don't say federal debt of 100% of GDP is unsustainable, merely that the ratio is meaningful for considering likely future scenarios.

Not all government assets would reduce debt if sold. For example, the federal government owns a lot of mineral rights. Sales of these rights increase revenue and thereby reduce growth of debt. If the government sold them all today it would reduce current debt, but the loss of future revenue would cause the debt to grow back to its old value. The same thing is true if the government sells a building, and then leases it back. These kinds of budget games are popular with State and local governments, but they aren't real economic changes.

Another problem is the balance sheet gives the impression that all assets are liquid. Many solvent entities (assets are greater than liabilities) have failed because the assets could not be liquidated fast enough to pay the liabilities, and their firesale crisis valuations were too low to reassure creditors about the entity's ability to survive.

A related point is that even if every entity is solvent, debt can cause a systemic crisis. In the 2008 financial crisis, nearly all of the financial system debt was owed to financial institutions. The net debt to non-financial entities was small relative to financial system assets--nearly all of which were low-risk, liquid assets like US Treasuries. Nevertheless, many firms failed because the complex mutual claims could not be unraveled and offset quickly enough.

A final distortion is excluding Social Security, Medicare parts B and D, and "fiscal gap" considerations in general from liabilities. The author's argument is sound on accounting principles, but not political principles. It's true that these entitlements are not legal obligations and cannot be estimated with any precision. But they do pose serious political problems nonetheless, along with unfunded federal, State and local pensions, contingent liabilities and spending programs that recipients have come to count on.

Looking just at accounting statements, it appears that these programs could be gradually reformed, and, combined with moderate spending cuts and tax increases, plus economic growth, debt could be maintained at sustainable levels. That might happen, but the problem is reform efforts open the door for interest groups to push new demands, and undercut the alliances that keep the program going. At some point, people under 50 might decide Social Security is too bad a deal; or newer public sector workers cut off from gold-plated benefits might elect union leaders who support defined contribution plans or transfer to Social Security.

Alexis de Tocqueville famously observed, "The most dangerous time for a bad government is usually when it begins to reform." Similarly, if less dramatically, when you begin to reform an unsustainable promise, there is a danger of revolution.

All of these observations are not meant as criticism, as they are well-known arguments you can read every day in popular opinions. This book is a useful counterpoint, to help you see beyond the conventional perspectives. But the accountant's view is too optimistic as it conceals some important aspects beyond the numbers.

On the other hand, there is one area in which the author's CPA-glasses make him too pessimistic. He repeatedly makes the bookkeeping point that government spending comes out of private capital. This zero-sum accounting view is misleading. You could say the same thing of a bank--any dollar of interest it pays its depositors comes out of payments by its lenders, and the bank is actually negative sum because it has administrative costs and makes a profit. Yet banks fertilize tremendous economic growth. Capital does not exist in fixed quantity, it can be formed. A good government project can stimulate far more economic activity than is reduced by the associated taxes or debt.

The author makes two very important points that I have no issues with. First is the tremendous value--dwarfing all officially recorded assets--of technology, human capital, freedom and culture. These are the real reasons to be hopeful about the future, not totalling up the book value of annual production or fixed physical assets.

Second is that the benefits of economic growth in the long run are so vast as to dwarf most other considerations. Prosperous economies have more freedom, justice, rich culture, environmental protection, equality, peace, security and nearly everything else good. Slowing economic growth in order to get some of those things directly is only rarely a good trade-off. There are times when it makes sense, but political leaders are much too quick to sacrifice long-term growth that will help all problems for short-term improvements in one particular problem.