One Trillion Dollars in Hundred Dollar Bills (click on picture for more info)

Try at all to be a responsible citizen and follow how the government is spending your money, and you will consistently run across articles where sums in the millions, billions, and even trillions are tossed around as if they were pocket change.  It can become very difficult to juggle these massive sums in your head long enough to organize them, and most people end up getting frustrated and give up.  So in the next few paragraphs, I’m to give you some mental tools to convert really large amounts of money into meaningful sizes that you can understand.

A good place to start building a ruler for these large sums is the market capitalization (market cap for short) of gigantic companies.  This figure represents what the market estimates the dollar value of a company to be, the price at which a company can be bought and sold.  This is a very interesting figure because it sums up a lot of complex assets into one simple number.  We’re talking about the value of all a company’s employees, it’s intellectual property, the cash it has in the bank, all the real estate it owns, all the specialized machinery it may own, the relationships it has with it’s customers and suppliers, and the value of all the company’s future profits. Here is the market cap of the largest ten company’s in the world. ( source wikipedia)

(listed in billions of dollars)

1) PetroChina $367B
2) Exxon Mobil $341B
3) Industrial and Commercial Bank of China $257B
4) Microsoft $212B
5) China Mobile $200B
6) Wal-Mart $189B
7) China Construction Bank $182B
8) Petrobras $165B (Brazilian Oil Company)
9) Johnson & Johnson $157B
10) Royal Dutch Shell $156B

If you noticed the themes of China and Oil, pat yourself on the back and give yourself a gold star.  Also you’ll notice 6 of the 10 are non-US companies on a list that we used to dominate.  But the real point here is to give you a quick little ruler to measure the economic value of a couple hundred billion dollars.  These are numbers we can understand if we build the right measuring tools, and we definitely need to understand numbers of this size when we try to look at federal spending.

Next is a graphic from Information is Beautiful that gives you a good overhead view of amounts of money being spent by the federal government compared with each other, and other non-government  figures of spending.  Remember in our last little bit of learning, we hit upon a nice round figure of $200-some-billion as a nice large chunk of economic power (click on the image to see detail).

Hopefully, you noticed the $7800 billion worst case scenario for the financial crisis.  This is the scariest figure because it represents potential losses the federal government has put the tax payers on the hook for to help out banks (the geniuses who charge you $40 bucks a pop on overdraft fees).  Remember with $7800 billion we could buy nearly 37 companies the size of Microsoft, the company that has a near monopoly on desktop software.  Or we could buy 41 companies the size of Wal-mart.  Think how many Wal-marts there are in America and they are expanding into Europe, India, and China as well.  Or we can get more relevant to the financial industry by looking at the market cap of Bank of America at $151 billion (yahoo finance).  So with $7800 billion we could buy more than 51 Bank of America’s.  This begs the question why not use that money to invest in healthy banks so they can lend more, or even start new banks with that money? That is, if you are really concerned about banks being able to lend to American businesses and consumers.  Who are we really protecting in guaranteeing against these losses?  By the way, the $3000 billion spent on the Iraq War should be evaluated in the same way.  How much bang are we getting for our buck here?  Who is really benefiting from this money being spent? Do the politicians we elect even care to ask that question unless we hold their feet to the fire?

Next we go for a little historical perspective.  As long as there have been governments there have been politicians willing to spend more than we could ever pay through taxes, so this problem isn’t new.  But remember we are looking for tools that our enhance our ability to have an appropriate sense of scale.  How big is big?  How much is too much? In the clip below the author focuses on the responsibility of the President in federal spending (and specifically President Obama), but in reality, spending has to be introduced, voted on, and approved by Congress before it ever makes it to the President’s desk.  While we won’t be able to vote on a new president for some time we will all have the opportunity to vote on new congressional representatives in 2010.  Also, don’t be fooled into thinking this is a Republican or Democrat issue.  The issue is how do we as as a nation want our government to spend its money.

National Debt Road Trip:

Ok so the question probably on your mind, is how is it that federal spending has gotten so off the charts bad? People have been talking lately about a failure of capitalism, but we actually have a failure of democracy.  Government spending is quickly jumping to sizes that dwarf the economic impacts of corporations.  Not that corporations are blameless in the process.  Looking at the huge handouts being giving to financial institutions at the moment, one can’t help but look at the huge donations these institutions and key individuals within them have given to both Democratic and Republican parties.  The problem with our democracy is that it has become a pay-to-play party where you can’t get elected without lots of money and without owing favors to the people and corporations who give you that money.

One of the biggest problems you will never hear your Representative or Senator talk about is incumbency rates (the percentage of incumbents who are reelected).  If you’d like to have some fun, write your representative about your concern on this issue and see how they respond.  The latest reelection figure for the US House of Representatives is 96% and for the Senate it is 83% (Open Secrets).  What this means is that in any given election there are only of handful of seats in the Senate or the House that are really up for contention.  The Senate has lower reelection rates but has longer terms of 6 years compared with 2 years for the House.  The House figure at 96% is especially troubling because all spending bills have to originate in the House (remember no taxation without representation).  How can we have 96% of the people in the House be reelected when we’ve had congressional approval rates as low as 14% (wikipedia) in 2008, the year of the most recent election?

Most people are unaware that congressional districts are consistently redrawn to ensure specific areas are a shoe-in for either democratic or republican candidates.   Not surprisingly, Republicans and Democrats are willing to trade favors to protect the stability of their power.  And this is the power to spend billions of federal dollars helping out those special people they owe favors to.  And when you have arranged to have a district of voters that mostly agree with you ideologically, all you have to do is pin enough blame on the party that thinks differently then your voters, and you get 96% of Representatives getting reelected, even while next to nobody thinks they are doing their job well.

Just remember, that on these big issues of spending and taxation you can have a voice if you choose to make it heard.  And you can understand these issues if you take some time to equip yourself with the mental tools to think through and filter the news you get.  If you still are in the mood to give up, you might want to start looking for another country to live in.  The problem is a crisis of democracy (a government of the people, by the people, for the people). And if this is going to get turned around, it’s going to be the work of educated citizens like you.

Last 5 posts by michael2l

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