Hey, Look! A Big Number
Something funny happens when a number has too many zeroes after it: people stop counting. Somewhere around, say, 2,000,000,000, your average man on the street (and, sadly, average Congressman) simply registers it as "really big number," and then moves on. Understandable, perhaps, but the result is a complete lack of perspective when comparing one big number to another.
This is from today's Los Angeles Times:
Janet Hook - April 15th, 2005 "We're approaching this in the deepest deficit our country has ever been in," Pomeroy said. "Under that circumstance, making the estate tax go away for 99.7% of people represents a pretty substantial achievement."
This is, simply put, nonsense. The deficit is only the "deepest" we've ever been in if you do two very silly things: ignore inflation, and fail to measure the deficit against the size of the economy.
This is where the "really big number" problem comes into play. In January, CBO projected a $477 billion budget deficit for the year. Setting aside the fact that CBO has overshot their estimates significantly the last two years, the only sensible way to measure the deficit is against the size of the economy.
Think of it in terms of personal finance: if I were to give you someone's American Express bill, would you be able to tell me whether or not they were living within their means? No, of course not; you'd need to see their income statements. And as it so happens, the United States has a pretty sizable income; we live in an $11-trillion-a-year economy.
Do the math, and that comes out to about 4.3% of GDP. Twelve of the last 63 years have seen higher deficits relative to the size of the economy. And if CBO ends up overshooting to the tune of a bit under $80 billion (which has happened before), the percentage drops to 3.6%, dropping it another three slots.
But again, it's easier to see the big number and recoil in horror. Historical perspective requires effort, after all.
» April 13th, 2005
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