You never know how it's gonna turn out.

To convert Base Year 2000 prices to Base Year 2009 using annual data, I'll multiply by 81.883 and divide by 99.997, like this:

Graph #1: Base-Year Conversion

Those numbers are the year 2000 values from the two source datasets.

To convert Potential GDP from Base Year 2000 dollars to Base Year 2009, I have to switch the numbers around, like this:

Graph #2: 2007-vintage Potential GDP (red) restated in 2009 Dollars

My revised data (red) is a good match to recent data (blue) before 1980. After 1980, not so much. But the blue goes low after 2010 while red runs high, and that's right: After the Great Recession, Potential GDP was revised down.

And, apparently, the data between 1980 and 2010 was revised up.


Now I want to multiply my revised red data by the GDP Deflator, to convert real potential GDP to nominal potential GDP. And I'll change the blue line to show recent (nominal) GDP:

Graph #3: GDP (blue) and a 2007 estimate of Future GDP (red)

The two lines run close. The red runs a little low between 1990 and 2010, similar to Graph #2. But I want to focus more on the years since the Great Recession. The blue line, showing what actually happened, runs lower than the estimate made in 2007. The gap between them is a version of the "output gap" that people were talking about for most of the last 10 years.


So far there should be no surprises, even if you have not seen the numbers used as I'm using them here. I'm sure you've seen output gaps many times. Then too, converting from one base year to another is nothing special. And using potential GDP as an estimate of future GDP, well I'm sure I'm not the first guy to think of that!

But I do have a particular task in mind. And I used the numbers I did in the way I did so that I'd have what I need to complete my task.

You know how people always look at debt to GDP? This is my task. This is what I'm going to do. But I want to look at debt relative to GDP two ways: relative to GDP as things turned out (the blue line) and relative to GDP as it might have been if the economy didn't slow down after the Great Recession (red).

What debt to use? Doesn't matter. I'll use the Gross Federal debt, because so many people look at that one.

Here's what I got:

Graph #4: Federal Debt to GDP, for Actual GDP (blue) and 2007 Estimate (red)

Hm. Not as much difference as I expected. The difference is 8½% of GDP.