A trillion dollars is over $8,900 per American household (calculated by dividing a million million dollars by
112 million American households.)
So, a trillion dollars could be described as a little less than $10,000 per household. What I like about this description is that it is easy to recall and to comprehend in terms of how much a subtraction (or addition) of this amount would impact a family budget.
Yet, for some reason, large numbers are often described with some absurd imagery, such as how high would a stack of $20 bills have to reach in order to make a trillion (which would be
3000 miles according to Congressman Poe). Or how much distance would a string of $100 bills have to stretch in order to make a trillion (which would be
38 times the Earth's circumferance according to Senator Thune).
Senator McConnell:
So how small would you look standing next to a trillion dollars? You would look like a man standing next to a huge corn field, according to this widely circulated series of graphics:
What Does One Trillion Dollars Look Like?.
But rather than describing a trillion dollars in terms of length, height, time, or volume, I think it's more useful to describe in terms of the goods/services that could be bought as well as in terms of the size of the population for which the good/services would be used. In the case of a trillion dollars of debt, this represents a shared cost to our country of almost $10,000 per household (which implies that
over future years, Americans will have to pay this money back and thus forego almost $10,000 worth of goods/services for each of their households).
But will our government actually ask us to pay this debt back? In theory, taxes could be raised high enough such that we would have an annual budget surplus of $100 billion per year. If so, then a trillion dollars would be paid back in 10 years.
I think this is unlikely, because the last year in which there was any reduction in the federal debt was in 1960. After that year, our federal debt has grown or stayed the same each year. The last year in which we paid off all of our federal debt was in 1835, during Andrew Jackson's presidency. So the federal debt has grown steadily, with only a few short periods in which the debt was reduced (e.g., from 1853 to 1857, the debt was reduced by half) before heading back up to new heights.
(For the source for the above information, see this article:
mises.org - Perpetual Debt: From the British Empire to the American Hegemon - 2004.)
Assuming we never pay down the debt, then what is the actual cost of a trillion dollars of deficit spending and who will pay the cost and what form will it take and when will it be paid?One possible answer relates to the annual interest that we pay on our federal debt. For the year 2009, we will pay $260 billion in interest on our federal debt, which is more than we will spend on Medicaid (i.e., $215 billion). So, perhaps, we will pay through higher taxes levied for the purpose of paying this interest.
Yet, what is to stop our government from just borrowing money to pay the interest on the national debt, just as our government annually borrows money to pay for expenditures that exceed tax revenues? If we're borrowing a trillion per year, then we're not really paying for the $260 billion in interest.
But eventually, many people would argue that we will have to pay for it, either through higher interest rates, a weaker dollar, higher taxes, reduced social programs, higher inflation, weaker economic growth, fewer jobs, etc. Although at this moment, interest rates are low, the dollar has stabilized, taxes are not getting appreciably raised, social programs are still meeting the required benefits, the
CPI is negative 0.4% (over the last 12 months), and the deficit spending is expected to increase GDP and jobs, there will come a time somewhere in the future, where this extra spending will have a negative impact.
Yet, some of these forms of payment could actually be partially beneficial. For example, a weaker dollar could reduce outsourcing. Yes, it would raise the price of all our imports, but our biggest costs are domestically-based (e.g., health care, education, housing). The strong dollar is mainly beneficial to those with a good paying job with good health care benefits. If your income is zero, then those cheap goods from abroad are unaffordably expensive.
Also, higher interest rates could encourage savings, which would help to re-capitalize our banks and provide capital for new investments that could lead to economic growth and jobs. It would also help our retired seniors who are reasonably reluctant to put a large percentage of their savings in the stock market, but at the same time, are discouraged by the currently low yields offered by treasury bills/bonds and savings accounts.
With respect to inflation, does the printing of trillions for the purpose of paying the debts of bankers necessarily lead to "more money chasing goods" and thus inflation? Many pundits have noted that the Japanese tried to bailout their banks, after which they experienced a decade of deflation. Or how about printing of trillions for the purpose of investing in new energy technologies? It's possible that such an investment could lower the price of energy and create new industries/jobs, which could provide a long-term return that would more than compensate for the deficit spending as well as the consequent interest payments.
Perhaps, we could just end all federal taxation and just deficit spend. If we did this, then we should stop borrowing from the Federal Reserve and instead just have Uncle Sam print the money. In this way, when we print money, we don't generate debt that needs to be paid back. Also, to keep inflation low, we just need to minimize wasteful spending (e.g., less crazy wars) and have a cost-efficient government. Also, to the extent that inflation occurs as a result of printing money, it would be good to ensure that everyone benefits as equally as possible from any government-induced inflation. One way is to provide a generous
Basic Income Guarantee, national health insurance, and the gradual elimination of the existing social programs (e.g., Medicaid, Medicare, Social Security).
Anyway, the above paragraph is just a half-baked thought that I decided to throw out there. But getting back to the main question of the post, the more I think about a trillion dollars, the less I feel I know what it means.
Here's a libertarian perspective on what wasteful spending means:
Krugman in Need of Remedial EducationThose who sat on the sidelines uninvolved had to fund this mad proposal with their tax dollars or the dollars had to be conjured up out of thin air causing either inflation now or some massive problem down the road (such as paying interest on the national debt).
So, what do you think it generally means when the government borrows and spends a trillion dollars? What do think it means in our case, with so much of the deficit spending going to those greedy, foolish financial companies and their bond holders?
Poll Question: What is the next number after a trillion?
1) a brazilian
2) a tera-zillion
3) a gobsmacker
4) a noodle-baker
5) a quadrillion
6) other
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