Friday, January 23, 2009

Just a little check on the numbers

So, as of today, the FedGov has committed, or is planning to commit to approximate $4 trillion (with a T) worth of "bailout" and "stimulus".

Just so we understand that number let's see what that means relative to personal and household income in the united states.

If we assume the current US population (2008 estimate) is relatively accurate at 306 million spread across approximately 115 million households; that's approximately $13,000 for every individual in the United States, or about $35,000 for every household.

The median personal income in the United States for those over 25, and with earnings (meaning it discounts all the unemployed, retired, and children and teens); is approximately $32,000. The mean household income for all households (including the unemployed, retired, children and teens) is approximately $46,000 with an individual earnings mean of about $23,000.

$13,000 for every individual, where the mean individual income for the employed is $32,000. $35,000 for every household, where the mean household income is $46,000.

It get's even worse if you account for the fact that approximately 40% of individuals and households pay effectively no income taxes; and only about 40% are above the margin line (meaning they pay more in taxes than the government pays out in expenses per person).

For the 40% of households and individuals above the margin line, that means a load of $32,500 per individual, or $87,500 per household.

Oh and of course that doesn't include the load posed by our $3 trillion dollar funded federal budget, and our $1 trillion budget deficit.... which conveniently matches the so called "stimulus" and "bailout" numbers.

...wait a sec...

So congress and the president have committed to, or are proposing that we spend a sum equal to our total budget; which is already in deficit by 1 trillion dollars (with a T)... thus increasing our deficit to 5 trillion dollars.

Oh and then there's our $11 trillion dollar national debt... which means they would effectively increase our national debt by almost 50% (to $16 trillion) in just one year.

In case you were interested, our gross domestic product per year is about $14 trillion; or $47,000 per capita... which happens to also be about the same as our median household income.

So let me get this straight...

In order to "bail out" and "stimulate" our economy, the politicians have committed to, or are proposing, that we spend an amount equal to our entire current budget; in the process increasing our national debut to more than our annual gross domestic product; and imposing a debt load on every household larger than their median yearly income.

Someone tell me again how this is anything other than a bad idea?

That's a little like saying "in order to get out of mortgage debt, we should put our mortgage on our credit cards".

Yeah... some folks tried that recently... didn't work out too well for them.

UPDATE: A reader comments that this makes perfect sense if you understand what the "stimulus" is really about.

I disagree. He presumes that I believe the so called stimulus plans are even intended to work.

They are not, and I am well aware of that.

Were they actually intended to work, they would be given as tax credits, deductions, and rate reductions or exemptions. This would directly increase the amount of money EVERYONE had to spend, and reduce all costs across the board. It would also eliminate the overhead of administering the program etc...

That would greatly and rapidly stimulate economic activity. In fact, in general, it would result in revenues HIGHER than they were before the tax cuts; though there is certainly a point of diminishing returns.

However, that would also reduce government funding, government power, and government control; and it would dramatically reduce politicians vote buying opportunities.

Their real purpose is to:
  • Increase governmental authority and control over the private sector
  • Increase the patronage money and opportunities for politicians to buy votes…
… but I’m pretty sure most of my readers understood that already.

The thing is, this mechanism won't achieve the true intended results either; or it will, but in an inefficient and suboptimal way.

The problem is, the people pulling this scam don't have even the most basic clue about economics.