What's It To Me

By James Walker, Ph.D.

"Human beings cannot comprehend very large or very small numbers. It would be useful to acknowledge that." [Daniel Khanaman]

The late Republican senator Everett Dirksen was fond of saying about budgetary matters: $1 billion here, $1 billion there, and pretty soon you are talking about serious money. It has come to the point that we now have to use scientific notation to deal with government spending. I have developed a technique for making very large quantities of money, such as the national debt, deficits, defense spending, and other huge expenditures meaningful. I call it the "what's it to me "technique. This technique allows me, through a little scientific notation, to determine my share of the budget, the annual deficit, and the major spending program categories. Once I have my share of these quantities, I can generate reasonably informed opinions about such things as:

A) Can I afford this?

B) Does it impose an unacceptable burden on me?

C) Am I getting good value for my money?

Let us make some calculations. One trillion is ten raised to the 12th power. Yes, one followed by 12 zeros. Can you get your mind around that? NO! My head starts spinning after about four zeros. One billion has nine zeros, and 1 million has six zeros. Our good fortune computationally is that the United States population of 333,287,557 as of 2022 is almost 1/3 of a billion. So, my share of government expenditure of one billion dollars is three dollars. We can then calculate my share of other large expenditures as follows.

Quantity	Relationship to 1 Billion	My Share
Trillion	1000 billion	$3000
Billion	1	Three dollars ($3)
Million	1/1000 billion	3/10 cent (0.3¢)

With this knowledge, let us look at my (and your) share of some aspects of our national financial situation. I will then make some judgments about my share of these issues. Your judgment about your share may differ from mine, but they will perhaps be based on a more informed perspective than has been heretofore available.

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National Debt

• Total 34 trillion dollars (BGTS.org)

• My share: 34 trillion/333.3 billion = 102,000 dollars

Can I afford it?

Yes, I have handled mortgages considerably larger than this without great difficulty.

Do I feel comfortable with my share?

No. The World Bank recommends that the ratio of national debt to gross national product should not exceed 65%. Let us look at our situation.

National debt = 34 trillion dollars

Gross domestic product = 27.36 trillion dollars (statistica.com).

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Debt/GDP = 34 trillion/27.36 trillion = 1.24 = 124%

This ratio is scarily high. However, Japan has reached a ratio of 300% without any disaster. Debt doesn't matter until it matters; no one knows precisely where that point is. Argentina defaulted on its debt seven times in the last century.

Did I get good value in accumulating this debt?

Sometimes yes, and sometimes no. At the end of the Clinton administration, the national debt stood at 56 percent of a year's gross domestic product (Wikipedia), and there had been four years of budget surpluses. At the rate we were paying down debt, we would have eliminated the national debt in only 12 years.

This prospect caused Federal Reserve chairman Alan Greenspan to wet his pants and support George W. Bush's tax cuts, which were backloaded heavily favoring the very wealthy. These cuts caused revenue collections to decrease, and the national debt began to grow again.

Lax regulation of the banking system in the George W. Bush administration allowed large financial institutions to reach a ratio of 33 to 1 of loans outstanding to reserves. In contrast, a prudent ratio is about seven to one. This careless policy produced a massive crash in the financial industry and brought on the "Great Recession." It threatened our economy with a crash, perhaps more significant than the great depression of the 1930s. This action forced the Obama administration to run large deficits to prevent this disaster. In my opinion, I got good value for my money here since it saved my (and possibly your) retirement pension.

Just about the time we had recovered from the "Great Recession, the COVID-19 pandemic struck. People stopped doing anything. Our economy was virtually paralyzed, and we entered a sharp recession. The official unemployment rate reached 14.8%, not counting workers misclassified as employed who were in fact, actually unemployed. Counting these properly, unemployment rates reached nearly 20%, and we were again threatened with economic collapse. The Trump and early Biden administrations issued several large cash distributions to avoid widespread poverty and support economic spending. In my opinion, early distribution was definitely necessary. The last one might not have been necessary, but better safe than sorry. Though these actions considerably increased the national debt, I think I got good value for my money here.

Donald Trump managed to push through another set of tax cuts, which heavily favored the very wealthy. These tax cuts have significantly increased the debt, and I think this was very poor value for its cost. In summary, over the last 24 years, the national debt has greatly increased to uncomfortable but still manageable levels. Sometimes the causes were acceptable and even necessary, as in the Great Recession and the Covid pandemic. Often, they were foolish and counterproductive, as in the two tax cuts for the very wealthy. Sometimes, their necessity was created by previous foolish policies such as the lax financial regulation of the Bush administration.

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Recent Budget

Last year's federal government spending was $6.1 trillion. $4.4 trillion of revenue was collected, producing a deficit of $1.7 trillion (CBO.gov). Since gross domestic product was $27.36 trillion, federal spending was 22.3% of the national gross domestic product, and the federal deficit was 6.2% of gross domestic product. My share of government spending was $18,300, and my share of the deficit was $5,100.

Can I afford it?

Yes. It is a lower proportion of my income than most advanced nations charge their citizens, and our government provides many valuable services to us.

Am I comfortable with it?

Yes. It does not impoverish me or diminish my lifestyle much compared to what it would be like if it were zero.

Do I get good value for it?

Yes, for the most part. Social Security is a generous base for retirement income. Medicare supports my healthcare well; our military is by far the world's strongest, and the interstate highway system is quite adequate. In addition, our federal government is remarkably free of corruption compared to many nations.

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The Budget Deficit

There is one serious problem with recent budgets. Last year's deficit of $1.7 trillion and my share of $5100 cannot continue over the long term. This deficit of 6.2% of national income is too high to sustain. Economists generally agree that a deficit of 3.9% of national income or less will decrease the national debt over the long term as a percentage of gross national product. Anything above that will increase that ratio from its already worrisome level of 124%. Federal spending was 22.3%of the economy last year. It was 24% of the economy in the year 2000. It has decreased a little as a percentage of income; however, the revenue collection has dropped to 16.1% of gross domestic product from its former level of 21%, producing our huge deficits of recent years. These enormous deficits have been caused not by overspending relative to the past but by decreased revenue collection. What is the solution? Restore tax rates on the very wealthy to their former level. They were doing quite well in the past before the last two tax cuts.

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Specific Federal programs

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Defense Spending

• The yearly defense budget is 782 billion dollars (Wikipedia)

• My share is $2346

• Defense spending's share of the federal budget is 12.8%

• Defense spending share of gross domestic product is 2.86%
  

Can I afford it?

Yes

Does it impose an unreasonable burden on me?

No

Do I get good value for my money?

Yes

(Prussia under Frederick the Great spent 25% of gross national product on the military, and they still call him great)

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Ukraine Aid

• Total spent so far: $175 billion (cfr.org)

• My share is $525.

Can I afford it?

A resounding yes.

Does it impose an unreasonable burden on me?

No

Do I get good value for my money?

Very much so.

The Ukrainians have been shedding their blood and having their cities smashed for over two years to stymie Russian expansion plans in Europe, which would wreck the world order of no expansion of borders by force erected since the end of World War II. We are only asked to support them with a modest amount of money, most of which comes back to our economy when they buy our military equipment. I will get my checkbook out if they need more help over the next two years.

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Social Security

• Annual expenditure of $1.4 trillion (gdbp.org)

• My share $4200

Can I afford it?

Are you kidding? How can I not afford it? During my working years, it provided me with a life insurance benefit and a disability benefit. Now, it provides me with a generous base for a retirement income, always at a modest cost.

Does it impose an unreasonable burden on me?

No

Did I get good value for what I paid for it?

Definitely yes. It is one of the greatest bargains I ever received right up there, with $50 a semester in tuition at a wonderful state university.

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Medicare

• Annual cost $832 billion (brookings.edu).

• My share is $2496

Can I afford it?

Again, I could not afford not to have it. Without Medicare, I could not get health insurance at any price at my age and my health history and would be forced to pay the outrageous sticker price for medical care out of pocket. In addition to paying 80% of my healthcare costs, it is a powerful bargaining advocate, holding prices down for all of us. Look at your next Medicare report and notice the difference between the amount billed and the amount approved.

Do I get good value for my money?

Yes - It is a huge bargain.

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Debt service

• Annual cost $678 billion.

• My share is $2034.

Can I afford it?

Yes - for now, but I fear it for the future.

Does it impose an unreasonable burden on me?

No - not now, but it could, perhaps even likely will, become one because since we are unlikely to be able to run budget surpluses in the near future, we will have to shrink the national debt as a proportion of national income by accumulated growth and inflation over many years as we did with our huge debt coming out of World War II. If interest rates should rise sharply, or if we continue to incur unsustainable deficits regularly, it could become a burden, possibly even an unbearable one, producing dire economic consequences. Debt servicing costs have risen sharply during the last two years as interest rates have risen. We should take this as a warning of what will happen if we continue to run unsustainable deficits or if interest rates rise substantially. Such unsustainable deficits bring down countries that have to default on their debts. Remember, Argentina defaulted on its debt seven times in the last century.

Do I get good value for my money?

No, this is a side effect of foolish taxation policies favoring the very wealthy by republican administrations pushing "Trickle down" or "supply side" Economics, which have not worked and have left us vulnerable to potentially high debt servicing costs.

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Summary

Overall, I have been pretty happy with most government spending programs in the last 24 years, and I feel that I have generally gotten good value for my money. What I am not pleased with is that the public debt has continued to accumulate at an unsustainable rate (Above 3.9% per year of gross domestic product), and this has been due not to excessive spending but to foolish tax cuts aimed at benefiting the very wealthy and based on bogus economic theories that do not work. These tax cuts have unnecessarily saddled us with ever-growing debt service payments, which could balloon into truly troublesome levels if we do not thread the economic needle very astutely over the next 20 or 30 years as we did during the 34 years between the end of World War II and the beginning of the Reagan administration.