Thursday, September 22, 2011

Some Scary Numbers

You may recall the catchphrase “Billions and Billions” (of stars) that was associated with astronomer Carl Sagan’s popular TV show Cosmos.(1) It seemed like an enormous number, commensurate with the vastness of the universe. Now, however, Billion is passe’, Trillion has become the new Billion –- such as in the US Federal budget deficit for 2011 is more than a Trillion dollars – and we need to recalibrate our mental calculators. So much has changed.

I remember making $1.80 an hour hauling beef for Wilson & Co, the meat packers. That was 1961 and I was not making much more than the black maids in that new movie “The Help.” And I was paying income tax and FICA.

Today the Government Motors unionized workers make $28 an hour (plus another equal amount in benefits) and yet complain. They just got a signing bonus of $5,000 plus inflation protection to ink their latest contract. Now that $28/hr is a scary number because it is unsustainable. We cannot compete in the global marketplace when nut-turners make $28 an hour. And thus far we have been somewhat lucky since the countries that make good cars –- Germany, Japan, South Korea –- are all expensive places to manufacture them. When the $5 per hour Chinese learns how to make a good car – say in 5 years – it will be all over except the shouting.

But I digress. What I really want to talk about are the scary large numbers. Take $1 Trillion (that is a million x $million) for example. $1 Trillion is the amount the US Federal Government collects in income taxes from those of us lucky enough to pay income taxes. It is also equal to the amount we claim on our deductions; thus the tax code saves us an equal amount, ie $1 Trillion. For the average Joe the deductions come from mortgage interest, charitable contributions, supporting your mother-in-law, and the like. Note that only about 10% of the $1 Trillion tax savings goes to those evil corporations (which happen to employ our neighbors). So when Obama talks about generating a few hundred billion dollars by closing tax loopholes, it is largely our loopholes he wants to close. And remember, also, that nearly half of US households pay no Federal income tax at all. When the President talks about paying our fair share, I wonder if it is those folks he wants to do more.

An even scarier number is $14 Trillion. That is roughly the US Gross Domestic Product (GDP), the total value of all goods and services produced in a year. But $14Trillion is also roughly the value of the Federal government debt, and also the total US household debt. Let’s do some arithmetic. If we divide the GDP by the US population, some 310 million, then the GDP per person is about $45,000, so is the Federal debt per person, and so is the personal debt of each person. For a family of four, that sums up to $180,000 in all three categories. Thus the average family owes $180,000 in government debt (not including State debt) and another $180,000 in family debt. Those are some scary numbers. Could it get much worse?

Oh, yes it can. Have you heard about the UNFUNDED LIABILITIES? Projecting into the future, the revenues from all Federal taxes will not be able to fund the required expenditures. The numbers are actually quite staggering: Social Security - $17T, Medicare - $88T, adding up to more than $100 Trillion dollars. Since the private net worth of all Americans together is estimated at just over $50 Trillion dollars by the Federal Reserve, you can see the problem.

James Madison foresaw the problem with government excess in Federalist 51:

If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place, oblige it to control itself.

It is pretty clear that the government, at least since FDR, and at all levels, has failed to live up to its obligation of restraint. Then Obama goosed it, but good!

(1) The title of Sagan’s last book was “Billions and Billions.” As a humorous tribute to him, a sagan was defined as a unit of measurement equal to at least four billion, since the lower bound of a number conforming to the constraint of billions and billions must be two billion plus two billion. What is the US deficit measured in sagans? Or should we call it an obama?


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