Not being wise in the ways of Twitter, I am not sure where Mr Eugenides got this piece of simple but effective graphics, only that he either acquired it or created it, one way or another, and that I found out about it because it was one of David Thompson’s clutch of ephemera last Friday:
I recall reading in one of Professor Parkinson’s books, I think in his classic Parkinson’s Law, that people only find it easy to have strong opinions about sums of money, or circumstances generally, that are within their particular and usually rather limited range of experience. So it is that a local planning committee will spend an hour arguing about a cheap loft extension, while nodding through an entire hundred million quid power station without discussion. Something along those lines. True, I suspect. Certainly true of many people.
So, the thing to do, with these otherwise unimaginably huge sums of money that politicians are slinging around nowadays, to keep all their various financial plates on sticks spinning fast enough, is what is done here, in the above graphic. Divide them all by the same (very large) number, until the original numbers become regular numbers of the sort regular people can relate to, while the numbers all nevertheless retain their relative sizes, to each other. The essential nature of what is going on is thus laid bare, for people who might otherwise be blinded by all the zeros, and all those bewildering words ending in “-illion”.
I agree with Mr Eugenides. This is clever.
And no, he didn’t invent it. It’s been around for a while.
The only way to balance any budget would be to make it compulsory for any bill that spends money to explicitly state where the money is to come from, and then to only allow it as much money as it says on the bill. I don’t think that will happen any time soon. All governments are part of a ponzi scheme, offloading their debts onto future generations.
Damn right it’s been around for a while. It under-states current US Federal Debt by a trillion dollars, so it’s *at least* several days old. 🙂
I think it started during the raising-the-debt-limit controversy a little while back? That’s the timing-context for this Youtube version(Link).
JJM
Sadly the figures are worse than this now.
The national debt is bigger – and there is no “budget cut” (cuts in the increase are not cuts).
Although the left have a new trick.
Take TARP as the baseline – then one can pretend that government spending has not gone up (some of us predicted that TARP would be used a baseline for cooking the books on government spending).
Still – the point of the post is valid.
Get rid of the naughts – then things are less difficult to relate to.
My favourite question to people who say that this stuff is complicated is to ask them at what point the rules of money change.
Money is like physics – the rules that apply to an atom also apply to planet. In the same way that you can’t solve your credit card debt by giving your kids more pocket money, so you also can’t solve the country’s economy by throwing more money at an Olympic opening ceremony.
They forgot to mention that this family has a printing press in the basement, and since 1971 has been able to print as many dollars as it likes, completely unbacked, and all the other suckers in the world exchange valuable goods and services for these bits of green paper. It’s hardly surprising that this family is living large, the only question is when do the suckers get wise to the scam?
My first thought on seeing this was, what would the UK budget look like if presented in a similar way? I suspect that the answer would be not quite as bad but bad enough.
My first thought on seeing this was, what would the UK budget look like if presented in a similar way? I suspect that the answer would be not quite as bad but bad enough.
A good companion to that graph is this one(Link). Specifically, the last two columns of this graph; most specifically during the last few years.
“But isn’t all of this deficit spending the reason unemployment has come down?”
Unemployment has not actually come down. See the last two columns for the last few years of this second graph.
Nuke:
I appreciate what you’re saying, but it’s not strictly true. We got a balanced federal budget in Canada without any legislative or procedural rules whatsoever. And to make it weirder still, we got it from a government that had been elected on a platform of specifically not balancing the budget. I’m not sure what kind of general principle one could draw from that, but it is definitely not that a procedural rule such as you proposed is the only way to get a balanced budget (or even a very good way, given the experience of other such attempts).
Stonyground
Very very approximately, you take the UK numbers and take off 7 zeroes to get your household income:
Income: 51,500
Spending: 66,900
Overspend: 15,400
Current Debt: 117,000
Proposed “cuts”: 2,000
Tedd, there’s irony for you, the one law that always seems to come true! Has anyone sued the Canadian Government for not fulfilling its mandate?
Good one. Not that I know of. But it creates a bit of a dilemma for voters who like balanced budgets. Do you vote for the party that vociferously campaigns against balanced budgets but then balances the budget when they get in power, or do you vote for the party that consistently preaches fiscal prudence but runs deficits when in power?
(I guess “none of the above,” as usual, is still the best answer.)
John K.
You, most likely, know what I am about to type – but others do not.
Even before 1971 there was a lot of credit expansion (what ordinary people would consider FRAUD).
What happened in 1971 was that the government (and their hangers on in Wall Street and so on) bumbed up against the limits – even the (rigged) limits they had written themselves.
But instead of limiting their actions – they got rid of the limits.
Even people meant this when they talk of “deregulation” they might have a point (although a poorly expressed point) – but they do not.
They do not mean limits on credit expansion (on the lending out of “money” than no one really saved – i.e. “money” that properly speaking DOES NOT EXIST), no.
They mean regulations such as Glass Steagall (got rid of by Clinton – although not the bit of the Act that allowed Federal Reserve banks buying government securities – oh deal me no) that prevented investment banks also engaging in retail banking.
I.E. regulations that were brought in NOT to limit credit expansion,but just to hit the Morgans – in order to please Rockefeller, more the son than the father.
By the way – for observers at the time, such as Ben Anderson – “Economics and the Public Welfare”, the aspect of G/S that allowed the Federal Reserve banks to go back to buying government securities (with money they created from NOTHING) was vastly more important than the hit-the-Morgans aspect of the Act (the division of investment and retail banking) indeed Anderson does not even bother to mention the Morgans in his book.
The idea that creating funny money to buy government securities (or credit expansion generally) is EVIL would not occur even to supposedly free market people like Anderson (they were too “modern” and “scientific” to think in those terms).
As long as the credit expansion is limited and guided (guided by the “right people” of course) all would be well.
It is only one step from this sort of (demented) thinking to the madnss of 1971.
Madness that (I remind people) was supported by Milton Friedman and other “free market” economists of the time.
Another element left off is why the credit card company allowed the debt to get so high and is more than willing to extend even more. It’s pretty much the lynch pin as to why governments can have such budgets but private households can’t.
The monopoly on Force.
And another line item left off is the $310,000 in soft debt in the present value of promises to the neighborhood (and that’s a very conservative estimate).
Paul:
As you say, it is not that pre 1971 was a golden age (so to speak) of financial probity, just that after 1971 all links with reality were severed. It’s as if we reached the time when the Romans debased the sectercius so much that there was no longer any silver in it. So far we have managed 40 years, how long did the Romans last before the empire crumbled around their ears?
Reality is slow but inexorable.
Those sounds you hear are the wings of some very big , ugly chickens on the way home for a nice, long roost.
Very approximately, using the same technique of subtracting 7 zeros:
If the UK were a family…..
Our income would be £57,500
Our expenditure would be £70,200
We would have added £12,700 to our credit card bill this year alone
Our credit card bill would be £104,000
We would have just loaned our dodgy mate Flash Harry £50,000 to save his failing business.
Our solution to all of this is, over the next 4 years, to try and reduce expenditure by £8,100.
Kinda puts all the stuff about cuts and bailouts into perspective.
There are differences with the Roman situtation – but they are not differences that are nice for us.
The Romans did indeed engage in debasement – but they did not have a system of credit bubble banking (money lenders had to have the money they lent out under Roman law) so whilst the economy was undermined it was not utterly DISTORTED (into some sort of mutant freak where the capital structure is utterly wrong).
So Constantine was able the restore the coinage without great difficulty.
Creating a coinage that was to for many centuries onwards (in various forms – the Byzantine coinage, the coinage of the Republic Of Venice and so on).
Us?
Well (to use the Irish form of words) “I would not start from here”.
This distortion of the capital structure has a very physcial side – for example the centre of our major cities in the West should not even look the way they do.
Finance should certainly exist – but it should not dwarf (physically dwarf) every other aspect of life. This is the physical manifestation of what the Austrian School calls a distorted captial structure.
The government (in some weird way) senses this – but then makes the situation WORSE with its “quantative easing” and demands that the banks “get back to lending money”.
What money? People are deeply in debt – they are not big net savers. The “get back to lending money” mantra can only mean lending credit bubbles on top of the existing credit bubbles.
So the economic plan is to build more towers in the magic fairy castle that is (supposedly) floating in their air.
Not Roman – their Empire took centuries to fall, but it did not go in for this.
And then there is the Welfare State.
In reality a lot of this lending is actually to GOVERNMENTS (so no wonder they are in favour of it) – in order to finance their Welfare States.
By the way the income from the “boom” were also taxed (at 40%) by Mr Brown to finance the Welfare State with (that is why New Labour was so “comfortable” with the banking credit boom – every trader was paying them 40% of his bonus).
And the Welfare State?
It is as sustainable as the credit bubble itself.
Rome had a few cities (such as Rome itself) with “bread and games” (and some state teachers and doctors also).
But THE VAST MAJORITY OF ROMAN CITIZENS had none of these things.
They were peasant farmers – far from the big cities, they had no free stuff.
That is why the decline of the Roman Empire took so long.
With us the decline will be fast – very fast.
Just popped back here to say a belated thanks to Pedant-General for his prompt and concise reply to my query about the UK household budget. It would appear that my guess was correct, not as bad but bad enough.