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May 27, 2009 – Comments (19)

Really, this is what I looked at with my students in math today.

The US deficit is $2 trillion, how much is that per worker.  Our estimate was 150 million workers and it comes to $13,333 per worker.

Next was how much per hour is that per worker assuming a 37.5 hour work week?

$13,333/52 =  $256.40

$256.40/37.5 =  $6.74/hour

Seriously, isn't that more then minimum wage in some places?  Maybe minimum wage has finally passed that in most places.

So, minimum wage is $9/hour here, and I asked them how much per hour would be left after paying their share of taxes. 

9-6.74 = $2.26/hour left for them.

Well, they did not think that looked very good and were curious as to what Canada looked like.

So, with the same methology Canada is running a $50 billion deficit and that would be between 16.5 million workers.

 50 billion/16.5 million is $3030.30 per worker.

3030.30 /52 = $58.28

$58.28/37.5 = $1.55/hour

9-1.55 = $7.45 left for them.

Ok, so going with my previous post, I ask the same question, what's triple AAA about this?

 

19 Comments – Post Your Own

#1) On May 27, 2009 at 5:54 PM, whereaminow (26.35) wrote:

dwot,

If you're not careful you'll make Paul Krugman's head explode.  You're starting to sound like Murray Rothbard.  Welcome to the tin foil hat club.

I haven't been around much lately, but I've reading your posts when I can. Always very informative. Thanks for the info.

David in California

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#2) On May 27, 2009 at 6:13 PM, binve (< 20) wrote:

dwot, Awesome post as always. If the value of the US dollar is derived from the fact that it is a claim of future taxes of its citizens, and the budget is so large that it projects a tax burden like this, then there is a fundamental disconnect here. I am glad you are opening your students eyes and minds to this kind of thinking.

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#3) On May 27, 2009 at 6:50 PM, Mary953 (75.85) wrote:

Dwot, They put something in the Air Conditioning here so we don't think about it.  Otherwise we would all run away. 

The serious answer is that we are raised on a diet of "This is America.  You can be anything you want to be!  We can do Anything!"   We have never had a situation where the population upended like this with this percent of seniors on a thinning economy.  The crazy thing is - We still are trying to do everything and will keep on as long as we can, till we dig out or plow under.   The interesting part to me is the slow anger growing among boomers who see their grandchildren being sold into wage slavery to pay for all of this.  We started as rebels and may go out that way.

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#4) On May 27, 2009 at 7:34 PM, finabuddy (95.38) wrote:

"The stable outlook reflects our view that the U.S.'s considerable economic and financial strengths will continue to outweigh the risks to its credit profile.

Substantial negative surprises affecting the medium-term prospects for economic growth, the trend of the general government deficit, and the potential for financial sector contingent liabilities to migrate to the general government balance sheet, combined with a meaningful decline in the global importance of the U.S. dollar, could cause us to change this view."

This is why its AAA and why it could be put on negative outlook.

Total debt is much larger (did you mean to quote debt for 2008?) The bottom line is, this debt is manageable and the US absolutely deserves a AAA rating for now. I dont know why you insist on pursuing a social or political agenda with these poor kids.

 

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#5) On May 27, 2009 at 8:02 PM, jesusfreakinco (28.94) wrote:

Fina,

Anyone believing our debt is only $11 trillion is an idiot and deserving of the propaganda  BS that our govt is feeding the masses.  I suggest you watch the IOUSA movie before you make comments that the US debt is manageable. 

Our debt on a GAAP basis is somewhere near $60T, not the $11T our government lies to us about.

If I could choose the accounting method I use, I'd be a multi-millionaire.

Think for yourself.  Don't let the govt think for you.

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#6) On May 27, 2009 at 8:57 PM, ChrisGraley (29.85) wrote:

Try this one for tomorrow's lesson dwot.

The U.S.A. current unfunded obligations are $99 trillion...

Go through the same steps and then mention...

If a plane ticket to St. Kitts costs $688

and dual citizenry in St Kitts costs about $30,000

and the tax costs of expatriotism in the US cost about another  $67,000.

 

I think you know where I'm going with this...

 

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#7) On May 27, 2009 at 9:15 PM, dwot (45.85) wrote:

Lol, I am freaking out over Canada's deficit and the US's is manageable, lol.

Canada has been through bring a much higher relative debt under control then what we have today and the US's relative debt is higher then anything Canada ever went through.

Took something like 12 years in Canada to bring rein in our out of control deficit and the debt skyrocketed during that period and people blame Mulroney rather then Trudeau.

You've high debt and a high deficit.

Egads, I had not really thought about the relatively low level of debt Canada had when Trudeau left office and Mulroney inherited a $38 billion deficit.

It certainly is going to be much tougher to deal with starting with high debt, high deficit and an aging population.

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#8) On May 28, 2009 at 11:51 AM, mindmuse (56.17) wrote:

Hmm, I imagine untaxed welfare payments for not working are higher than the $2.26 an hour left for working, which would suggest that a rational person working at that earning level would deploy those 37.5 hours for something a lot more entertaining than paying off the deficit. This, of course, would skew the future figures since the deficit would increase to care for them, while the workers denominator would decrease.

Now where exactly is St. Kitts...?

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#9) On May 28, 2009 at 12:12 PM, Schmacko (56.58) wrote:

Why are you assuming a 37.5 hour work week and not a 40 hour work week?

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#10) On May 28, 2009 at 12:15 PM, ByrneShill (76.69) wrote:

Luckily corporations pay some taxes, and most canadian workers make more than minimum wage. Unluckily, the middle class like you and I will get a bigger slice of the debt to pay to compensate for the minimum wage earners who pretty much don't pay any tax at all.

As for the AAA rating, the I guess the rating agencies (the same who were rating junk bonds AAA btw) bet that the usa could raise a boatload more taxes and still the people would pay less in taxes than they would in most western countries.

As for our deficit... I don't know what to say. I feel the same way you do I guess (like someone financially-bashed my head with a phone book). Everyone agreed that cutting GST was a bad move, that lowering taxes AND raising spending would eventually lead to deficits, but the cons did it anyway. And now they're gonna take our (the pensionless taxpayer's) money to refill the autoworker's pensions plans and bail out bankrupted companies from another era.

I'm appaled at the fact that they spend more energy trying to regulate what goes on between the sheets in every canadian homes than they do "fixing" the economy. Maybe we just get the politicians we deserve. If that's the case then someone did something really bad to get us all in this mess.

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#11) On May 28, 2009 at 12:18 PM, ByrneShill (76.69) wrote:

@Schmacko : The average work week in canada is closer to 37.5 than to 40 hours. In some provinces it is even less than 37.5.

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#12) On May 28, 2009 at 12:33 PM, dbjella (< 20) wrote:

dwot's

Why did you perform this only on the deficit?  Why not perform the excercise on the debt?  Isn't the debt the true obligation of American taxpayers and is made up from the sum of all deficits and surpluses?

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#13) On May 28, 2009 at 1:09 PM, UKIAHED (37.68) wrote:

jesusfreakinco - Our debt on a GAAP basis is somewhere near $60T,

ChrisGraley - The U.S.A. current unfunded obligations are $99 trillion...

 

Interesting that you both use unfunded debt for these numbers but came out to different totals… maybe you are using different discount rates to come up with a present value?  Maybe you are not giving us the present value (but instead the simple total)?  It looks like jesusfreakinco is the closest by adding present value unfunded debt to current present debt…

The research I find (from Sept 2008) concludes:

The present value of these deficits or unfunded obligations is an estimated $41 trillion. This is the amount that would have to be set aside during 2008 such that the principal and interest would pay for the unfunded commitments through 2082.

 

I’m kind of curious on why we should be so worried about the unfunded debt?  Unfunded debt is kind of like your mortgage balance.  Do you have enough money in savings to cover your total mortgage and interest for the next 30 years?   To give you an idea of what that means – my $300K mortgage at 4.5% is actually an unfunded debt of $547,220 as of today (with no discounting).  That is pretty scary based upon my income – but based upon my income over the next 30 years – not so much…

 Did you realize that they are running out 75 years to get a total for unfunded debt?  What do you suppose the tax revenues will be 75 years out to cover the debt?  How much of that debt will go away (as a percentage of income per person) with inflation of wages and GDP?

Now I’m not saying that the unfunded debt number is not important – and we need to be aware of it when we plan for the future – but we should not lump it into the current debt number – GAAP would have you put it on a separate line.  Unfunded debt in this case means that our expectations for future benefits may exceed our ability to pay for those benefits.  So we need to fix either our expectations – or increase our ability to pay…in either event – fix Social Security and Medicare!

 

dwotNice workup for perspective for your students.  I like that you used the deficit instead of total debt as I would use this as an analogy to using credit card debt to “live on”.  And it is great to compare this year's earnings versus this year's additional debt.

A note on your numbers – average wages in the US for 2006 (sorry not enough time to find more current numbers) was $19.29/hour.  And do not forget (I’m sure you did not), that this is a progressive tax system – so the minimum wage earners would not be responsible for their entire share of the debt.  But think about how much of that debt Bill Gates gets to pay!

Enough from me – REC for your post – perspective is always a great thing!

Have a great day

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#14) On May 28, 2009 at 1:13 PM, h2ound08 (< 20) wrote:

dwot, contrary to one of the posters above who think youre "pursuing a social or political agenda with these poor kids," i think its great that youre getting your students to start thinking about issues like government spending, deficits, and debt.  i graduated last year, and only then did i start following national news, the economy, the markets etc. (maybe i was behind my peers in this, but i doubt it).  i wish that my education had included more focus on current events, including informed discussions on the national and global economy.  your students will be ahead in the long run to understand and prepare for their futures.  rec for that.

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#15) On May 28, 2009 at 2:07 PM, WillSurfForFood (79.55) wrote:

I wish the numbers got reported like this, more people would be concerned because it is so much easier to understand. The problem with numbers like 1 trillion dollars is that it is so large it becomes abstract. At that point what is the difference between 1 and 2 trillion. When you divide it down to dollars per worker or dollars per hour the abstract numbers become very real.

 

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#16) On May 28, 2009 at 2:46 PM, tonylogan1 (28.21) wrote:

UKIAHED - Rec from me on your post, saved me time typing.

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#17) On May 29, 2009 at 12:03 AM, dwot (45.85) wrote:

Interesting comments.

I did not realise that a 37.5 hour work week was much less common in the US.

I had never looked at the numbers this way before, but certainly to me it was a strong way to show the shortfall.

This isn't good... Tax revenue is falling far more then the relative job losses.  

Our highest tax bracket in Canada when we were trying to get our debt under control was 54.9%, and that started with an income of $80k, and that was when it took $1.60 CAN to buy $1 US, to the US equivalent was $50k.

It looks like taxes from the higher income workers have dropped off as in they may have had pay cuts or perhaps have been let go at a higher rate.

 

 

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#18) On May 30, 2009 at 9:42 PM, finabuddy (95.38) wrote:

UKIAHED thumbs up

by the way if it wasnt manageable, to the lol from ealier, then it would all be over at this very moment.

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#19) On June 05, 2009 at 5:21 PM, bootz15 (< 20) wrote:

It's true -- the USA debt is both HUGE and hard to imagine. See my blog post to comprehend a little more. Very interesting, I promise!

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