Putting $23,700,000,000,000 in perspective
Richard Feynman, one of the greatest physicists, once said “There are 10 to the 11 stars in the galaxy. That used to be a huge number. But it’s only a hundred billion. It’s less than the national deficit! We used to call them astronomical numbers. Now we should call them economical numbers.”
The soon-to-be former inspector general for TARP, Neil Barofsky, testified yesterday that the total government liability for promises it has made to save the financial industry is $23.7 trillion. This is a fantastic number in multiple senses of the word.
In true government efficiency, they have promised this amount of money to save a small piece of an economy that in total is worth only $14 trillion. The U.S. government budget (if Obama would release it) is just over $3 trillion dollars. These numbers are so large that they boggle the mind, and this is the problem. When people’s minds are boggled, they tend not to focus.
Here is what I propose. In order for you to make personal sense of these numbers, whenever you hear them, divide it by the gross federal receipts (this is the amount of money the federal government takes in in taxes and other revenue). This year that number is about $2.3 trillion. When you have that ratio, multiply it by your own personal gross income, whatever that may be. To recap, take the huge number in trillions, divide by 2.3 and multiply by your own gross income. By doing this, it will give you perspective on just how large this particular number is in relation to how much money the government “makes.”
For example, the average median household income in the U.S. is around $50,000. Using that as our guide, and taking the $23.7 trillion promise, this is the equivalent of a normal family promising to pay ($23.7 trillion / $2.3 trillion = 10.3) x $50,000 = $515,217.39.
So, to put this number in perspective, how would you feel about promising to pay, on a moment’s notice, 10.3 times your gross salary? You see, $23.7 trillion is an abstraction. But 10x your gross salary is as concrete as numbers come. That’s 10 years worth of work. (Actually, after taxes and what you actually take home, it’s more like 20 years worth of work.)
So let’s look at other “astronomical numbers” that have been floating around:
|Item||Actual Amount||Ratio||Average Household|
|2009 Budget Deficit (with no healthcare changes)||$1.9 trillion||0.826||$41,304.35|
|Total current national debt||$11 trillion||4.78||$239,130.43|
Total unfunded government liabilities from medicare,
medicaid and social security (excluding the $23.7 trillion)
As the Peter G. Peterson Foundation and the movie IOUSA points out, the last amount is the amount that the aging baby boomer population will cost as they retire. For forty years they have provided a net surplus in receipts as their FICA and medicare payments have offset a smaller retiree population. Now the tide has turned and fewer young people have to support them. Not only to we lose the surplus that their excess contributions gave us, we have to cope with a deficit that their retirements bring. Sort of like going from an interest only period to an interest and principal period on a balloon loan/ARM.
To put it another way, the annual budget deficit is the average family running up $41,000 on their credit cards this year alone. The national debt is the $239,000 they already owe. The total future unfunded liability is the $1.2 million dollar house they just bought three years ago with a 5/25 ARM.
[...] known as Cash for Clunkers. To understand how little $2 billion is to the federal government, as I’ve said before, divide $2 billion by $2.3 trillion and multiply the result by your gross salary (so not much; [...]