You're just a statistic.
You need to understand math to understand money. Not differential equations or sympleptic and contact topology, but a little rudimentary addition and division wouldn’t kill you. Division alone should get you through this week’s post.
If you want to grasp what the macroeconomic world means to you, both now and in the future, personalize it. Understand that “the government” doesn’t bail out Fannie Mae, or Freddie Mac, or General Motors, or Chrysler, or Goldman Sachs, or Bank of America, or AIG, or Citigroup, or Wells Fargo, or Morgan Stanley, or Capital One. You do. More specifically and accurately, you bail out those companies’ executives and managers, and indirectly, their employees and customers. All economic transactions, if you strip away enough layers, are between individuals and/or groups of individuals.
It’s an obvious point, but one many people ignore. The next wealth created by government, any government, will be the first. Government redistributes. Or to be more fair, government bureaucrats and legislators redistribute. They act as intermediaries, taking assets (and liabilities) from some and giving to others. Sometimes government actors do like Robin Hood, taking from the rich and giving to the poor. Other times they’re like Ayn Rand’s Francisco D’Antonio, taking from the poor and giving to the rich (or as he calls them, the unproductive and the productive respectively.) Most often, government actors confiscate from the middle-class and redistribute to the similarly situated. While taking their cut, of course –which they distribute among each other. Money is never money unless someone’s possessing it. A non-human entity, whether a King Charles spaniel or a building, literally has no use for money.
Not to get too philosophical, but there’s no such thing as “collective” economic action as distinguished from the accumulation of our individual actions. National economic pain or prosperity – consumer confidence, or whatever else you feel comfortable calling it – equals yours plus mine plus your neighbor’s plus her neighbor’s.
With a federal budget dealing in numbers far beyond anyone’s daily grasp, it’s easy to liken economic data to astronomical data. For instance, Neptune is 2.7 billion miles away. But even if you understand every word in that sentence, and know the sentence makes sense, can you visualize exactly what it means? Neptune is farther than Tuva, farther than Antarctica, farther than the Moon. Yet is there a way to understand that in physical, personal terms?
If you drive 20,000 miles a year, and drive from the age of 16 to the age of 86, that cumulative distance is to the distance to Neptune as a mile is to the distance across the United States. That’s still complicated, but it’s about the best we can do. With national dollar figures, we can see how our government leaders’ failure to restrain themselves fiscally impacts us directly. Two little words: per capita.
“Trillion” and “million” are almost homonyms, which is where their similarities end. A trillion is to a million as the population of the United States is to the population of a subway train. Or as LeBron James’ salary is to your average 5-year old’s allowance. That doesn’t stop politicians from insulting your intelligence by proposing budgets in trillions while promising cuts in millions.
In the remainder of this week’s post, we’re going to divide every number by 300 million, and give you an idea of how government spending affects you personally.
The preceding anecdote refers to a speech the president gave last April, 2 months after signing the ($2,623) American Recovery and Reinvestment Act, a/k/a the (first) stimulus bill, and encouraged austerity among his inner cadre:
“I’m asking for all of (the cabinet secretaries) to identify at least (33¢) in additional cuts to their administrative budgets.”
Presumably, he means annually. Let’s examine each department’s budget:
Health & Human Services $2,818
Defense $2,170
Agriculture $317
Veterans’ Affairs $292
Transportation $244
Education $209 (excluding $323 in stimulus funding)
Homeland Security $173
Justice $154
Housing/Urban Development $146
Energy $ 80
Interior $67
Treasury $ 65
State $55
Commerce $47
Labor $47
You can see what a gigantic, gaping hole a 33¢ reduction would leave in the coffers of the tattered vestiges of a once-robust Department of Health & Human Services. Last fiscal year, the United States’ federal deficit increased by $6333. (Not to $6333, by $6333. To would be $48,167. Are we getting close to your net income yet?) That last number is somewhat misleading, because many of us are either too young or too old or too disabled or too incarcerated to work. Per taxpayer, the number is closer to $60,000. The interest you incur on that debt is $1,513, or 18% of the total. You’ve also borrowed $12,502 in Treasury securities, at least a third of which has gone to Chinese government leaders investing on behalf of their citizens. You paid $50 to bail out Fannie Mae and Freddie Mac. The preceding president appropriated $45 of your money to bail out General Motors and Chrysler – the latter of which was owned by a private capital management firm whose members were all billionaires or close to it.
Stop complaining, Citizen. This is all for the Greater Good. Repeat after us: The Greater Good.
This is ostensibly a personal finance blog, so if you’re wondering how this talk affects you, understand that electing fiscally ascetic politicians can mean thousands of dollars to your bottom line. Taking the effort to find them, vote for them and maybe even volunteer for them will help Control Your Cash more than clipping any coupon will.
