Friday, October 10, 2014

An Ugly Math Primer On American Debt

At one time a billion dollars was a massive amount of money and it still is. Most people that have not thought about it might not think so considering how modern media and politicians throw the "B" word around. On several occasions, I have heard a billion dollars accidentally confused with its much smaller sister the million marker. This drives me crazy. When someone misspeaks and says " the clean up effort for superstorm Sandy may run as much as 60 million dollars."  With a billion dollars being a thousand times larger this confusion is undefendable. 

 Believe it or not, the little pile next to the man on top is $1 million dollars (100 packets of $10,000). You could stuff that into a grocery bag to walk around with it. Start talking about a $1 BILLION dollars... now we're really getting somewhere...
$1,000,000,000 (one billion dollars)

Internalizing the magnitude of the difference

A million is a large number. To put it in perspective think in terms of someone working every year from the age of 20 until they are 60 making $25,000 a year. Their total income over their life would be one million dollars. The magnitude of difference between billion and million is important. Another way this difference can be illustrated is with the example below that uses time as a scale or measuring stick:
  • A million seconds is 12 days.
  • A billion seconds is 31 years.
  • A trillion seconds is 31,688 years. 
Now back to our topic and "debt math primer."  Making the ugly math simple so we can understand how it interrelates with our debt is no easy task, but let's have a go at it. In an effort to keep this simple I have chosen to focus on America. A similar formula can be created for almost any country. To make things easy lets us do a bit of rounding off and work with easier to manage numbers. Not lying about the numbers to arrive at a clear picture of reality is important.

We will start by placing the population of the United States at 333 million people, (this number is reasonably close) and includes every man women and child. What makes this important is that it includes infants, children, teenagers, the nonworking both self-sufficient and those on government assistance, the retired, and the elderly in nursing homes. How marvelously simple and convenient that this number goes into 1 Billion dollars roughly 3 times.

This means that every 1 billion dollars spent by our government represents an outlay of roughly $3 for every person in America!

Taking the number of people and placing them into other groups is more challenging. Those groups can include; households or families--- for ease we will call the average household  3.4 people. When we look at "workers" we are looking at according to government figures in 2008, 120 million people were employed out of an estimated 330 million citizens. However, unemployment increased after that date. Last but not least how many taxpayers exist in America? This is very complicated,  many taxpayers get back more in a refund than they pay in and there is a huge difference in amount people pay, also do we consider a joint return as two payers? Bottom line, whatever it means,  nearly half of households do not pay taxes. This we must remember!

Back to simplicity: So $100 billion represents or equals $300 per person and $1,020 per family,

Unfortunately, we are not talking about only $100 billion. The American government has been running massive budget deficits for years. Recently we saw several years where the deficits far exceeded one trillion dollars. One trillion dollars is ten times the $100 billion multiplied out above. That would represent a staggering $3,000 per person and $10,200 per family being spent each year, year after year, it adds up very fast! Again we must remember nearly half of households not pay taxes, and if they don't someone else must pay their share for them.

Sadly, this massive deficit is what is propelling the economy forward, and it is not sustainable. Please note; Massively compounding the problem is the realization that most people such as infants, children, the disabled or unemployed could not pay their share if their life depended on it, this transfers the burden to the remainder of society. The bottom-line is that it is easier to spend or waste money than to pay it back and a billion dollars is a lot of money to repay. When you start talking about debt in multiples of thousands, tens of thousands, and even more the task becomes impossible.

Footnote; If you found this post about how much the American government is overspending interesting or informative please look at my recent post about an article written by Mort Zuckerman in early 2013, it is really shocking, you can find the link below. Also, nothing is as sobering as looking at the National Debt Clock, that link is also below. Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged,

1 comment:

  1. This is a great (uncomplicated and easy to perceive) article.