The Fake Metric Behind the Real Deficit

A metric that treats $13 spent for $1 gained as sound economics is the intellectual justification behind America's $36 trillion debt spiral.

The United States carries $36 trillion in debt, paying over $1 trillion annually in interest alone while simultaneously adding another $2.3 trillion a year to the national balance sheet. The official response? This is all perfectly manageable. Debt is abstract, we’re told. We owe it to ourselves, they explain. But the most blatant lie: it’s productive investment. They insist this, with the kind of serene confidence typically reserved for fund managers explaining why their 30% annual fees are actually saving you money.

The premise, as they would claim, is that investing in America leads to growth, and that growth can be used to pay back the debt. This might be more convincing if they ever actually paid back the debt—which, of course, they don’t.

Interest payments now exceed military spending and are tracking toward Social Security levels. But the real marvel isn’t the scale—it’s the intellectual framework used to justify it as investment. Enter the Incremental Capital Output Ratio, or ICOR, the economic equivalent of declaring victory by redefining winning.

The Elegant Simplicity of Creative Mathematics

ICOR operates on beautifully straightforward logic: divide investment (as a percentage of GDP) by GDP growth, and you’ve unlocked a perpetual justification for more borrowing. Invest 13% of GDP, achieve 1% growth, and congratulations—you have an ICOR of 13. The mathematical elegance is undeniable, even if it celebrates treating a $1.3B cost for a $100M return as sound economic policy.

The sleight-of-hand lies not in the math—which is simple enough for congress to nod along to—but in the unstated premise: that this new GDP growth is permanent. A trillion-dollar boost isn’t treated as a one-time gain—it’s a new baseline. A perpetual stream of unlimited prosperity flowing indefinitely into the future.

If we invest 13% and GDP rises by 1%, ICOR declares success: “Excellent! A 7.7% annual real return, in perpetuity!” It’s the kind of hockey-stick chart that would make even the most optimistic venture capitalist pause.

There’s just the small matter that our debt now exceeds GDP. If ICOR logic holds, our $36 trillion in deficits must have saved us from a counterfactual economy of at least negative $9 trillion. We should be grateful.

The Architecture of Assumption

The ICOR framework rests on three core assumptions—each more ambitious and unhinged than the last.

The Causality Assumption. ICOR attributes all GDP growth to government investment, as if the economy would otherwise stand perfectly still. No technological progress, no entrepreneurial drive, no demographic shifts, no global tailwinds, not even inflation—just Keynesian mechanics, reliably triggered by the precise application of public capital.

The Permanence Principle. That trillion-dollar growth boost? It’s permanent. It never decays, never requires maintenance, never faces obsolescence. Bridges don’t age, skilled workers don’t retire, and technological advantages don’t erode. And when growth inevitably slows—not as a failure of past investment, of course—the solution is always the same: spend more, declare success, repeat.

The Productivity Presumption. ICOR assumes every dollar is deployed with surgical precision. The line between building new capacity and patching old infrastructure is conveniently blurred. In reality, filling potholes and repainting stations aren’t actually investments in growth—they’re deferred maintenance that adds no new economic output or capacity. But, according to ICOR it’s always, purely productive.

The Structural Oversight

ICOR conveniently sidesteps depreciation, financing costs, and the inconvenient question of whether GDP growth can service the debt before the underlying assets need to be replaced. More fundamentally, it ignores whether our tax system can actually capture the value of the growth it claims to create.

Even if ICOR’s math held up—even if GDP gains were permanent—we’d still face a more basic problem: our tax code doesn’t harvest GDP. It taxes wages. And wages are shrinking as a share of GDP, even as debt keeps rising.

The economy grows through enterprise value, asset inflation, and non-wage income streams, while our revenue model remains anchored to W-2 withholdings. That’s not just inefficient—it’s structurally incompatible with the growth we’re supposedly buying.

The Private Sector Standard

Meanwhile, private capital operates under hard constraints. Every project is vetted through internal rates of return, payback periods, risk-adjusted analysis, and net present value—all accounting for depreciation, financing costs, and opportunity costs. Even the IRS recognizes this reality, requiring private businesses to depreciate capital assets over time rather than treating them as permanent fixtures.

Public capital, by contrast, is quietly justified through ICOR—a metric that ignores these realities and declares success after a single year of modest growth. The $7T equivalent of evaluating a restaurant based solely on opening night, then assuming every night will be packed without ever checking the books or the kitchen.

The Necessary Questions

Both intellectual honesty and basic fiduciary responsibility require asking uncomfortable questions:
• Is the growth structural or temporary?
• Does it persist once the capital stops flowing?
• Does it repay the investment before the asset needs replacement?
• Can our tax system actually capture the gains it claims to create?

If any answer is no, the investment fails—regardless of what ICOR claims.

The Path Forward

Public capital deserves the same scrutiny already applied to private investment: clear timelines, measurable returns, and accountability for outcomes. ICOR should be treated as a trailing indicator—not a decision-making tool.

The core truth is simple: spending that doesn’t generate tax receipts isn’t investment—it’s consumption. And borrowing to fund consumption doesn’t produce growth—it produces debt that must be repaid at the cost of future growth.

Eventually, the bond market will notice. Or inflation will. Or the math will simply stop working—as math tends to do when detached from reality.

Until then, ICOR will continue earning applause for marginal GDP gains bought on expansive credit, dignifying consumption with the language of investment.

The performance is impressive. The economics, less so.