How Big is 700 Billion?

The treasury’s financial bailout has been labeled Troubled Assets Relief Program (TARP).  Since they chose a name whose acronym sounds more like a government scandal or cover-up, I’m not sure they’ll fair much better with the details.  To this end, I’m going to ignore all the information/misinformation, and focus on putting this number in perspective.

[Image: Money falling from sky. Courtesy of Seeing Red AZ.]

Numbers this big become difficult to understand or visualize.  If you disagree with this phenomenon, look at retail where they will break down numbers that are only in the thousands to just mere dollars per month.  It is much easier for us to understand the impact of a couple dollars on our monthly habits than the effects of a one time lump sum on future cash flow.

To this point, I enjoyed the following quote that tries to grapple with our understanding of large numbers.

Big numbers are hard for people to process. 700 billion can start to sound like 300 billion, or 900 million for that matter. It becomes like sand grains or moon strands, magically big, past the point of counting; an amount you sit with a nephew and contemplate in wonder. Or, if you’re rushing through the paper, “a whole lot.”

- Zephyr Teachout

Let’s start with zeros, all eleven of them.  This plan is costing the government (all of us taxpayers) 700,000,000,000 dollars.

REPRESENTATION

I considered using AutoCAD to make a simple dot matrix illustrating 700 billion points.  However, even at a screen resolution of 1600×1200, you don’t have enough pixels for this.  The largest set of points (a black screen) could be no larger than 1.92 million.  At that rate, it would take an additional 364,584 more screens.

POPULATION

In 2007, the estimated population was 301.6 million.  Using this figure, the bailout plan will cost $2,320 per person.

Modifying this calculation to reflect the labor force, the US Dept. of Labor estimates there were 151.4 million people, 16 and older, employed in 2006.  This translates to $4,624 per employed person.

Now, let’s say for some reason the entire world pitched in to help out.  At 6.7 billion, that is still $104 per person.

HOUSING

In 2007, the median price of new homes sold in the US was 247,900.  At that rate, the government could buy 2,823,719 new houses.  Assuming 4 people per household, that is 11.3 million people.

This number can be incredibly frustrating if you can relate to the following portrayal.

[Image: Home mortgage cartoon. Courtesy of Punny Money.]

HEALTHCARE

According to the National Coalition on Health Care, total spending on health care was 2.3 trillion last year.  At that estimate, 700 billion would pay for 30.4 % of our health care system.  That would cover 91.8 million Americans, or almost double the number of uninsured Americans – 47 million.

NATIONAL DEFENSE

According to Center for Arms Control and Non-Proliferation, the US spending on defense this year will be 696 billion, almost equal to the bailout plan.

TRANSPORTATION

According to a government study by the Passenger Rail Working Group, they foresee the following cost estimates of an intercity passenger rail network:

• Immediate (2007 – 2015) = 140 billion
• Mid-term (2016 – 2030) = 327.8 billion
• Long-term (2031 – 2050) = 271.2 billion
• Total (2007 – 2050) = 739 billion

700 billion towards a transportation system would leave us only 39 billion dollars shy of a 50 year national rail network.  With a 2007 FY budget of 2.73 trillion, it would only take 1.4% of our annual budget to make up the difference.

TIME

700 billion seconds equals…

• 11.67 billion minutes
• 194.4 million hours
• 8.1 million days
• 1.16 million weeks
• 22,257 years

The age of Earth is estimated at 4.55 billion years, a number that is 0.65 % of 700 billion.

The age of the universe is estimated at 13.73 billion years, a number that is 1.96 % of 700 billion.

DISTANCE

Given the circumference of the Earth is 24,902 miles, 700 billion miles would take you around the equator 28,110,192 times.

At Mars’ recent closest distance to Earth (34.6 million miles), you could have made 10,115 roundtrips before going 700 billion miles.

ECONOMISTS

This last number is a more abstract means of understanding 700 billion dollars.

On Monday, John Cochrane of the Chicago Graduate School of Business started a petition of economists to Congress.  All petitioners agree to the following:

As economists, we want to express to Congress our great concern for the plan proposed by Treasury Secretary Paulson to deal with the financial crisis. We are well aware of the difficulty of the current financial situation and we agree with the need for bold action to ensure that the financial system continues to function. We see three fatal pitfalls in the currently proposed plan:

1) Its fairness. The plan is a subsidy to investors at taxpayers’ expense. Investors who took risks to earn profits must also bear the losses.  Not every business failure carries systemic risk. The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise.

2) Its ambiguity. Neither the mission of the new agency nor its oversight are clear. If taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards.

3) Its long-term effects. If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America’s dynamic and innovative private capital markets have brought the nation unparalleled prosperity.  Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.

For these reasons we ask Congress not to rush, to hold appropriate hearings, and to carefully consider the right course of action, and to wisely determine the future of the financial industry and the U.S. economy for years to come.

As of 8:30 CT this morning, 192 economists from 43 universities had signed the petition.  Link courtesy of Matthew Kahn at Environmental and Urban Economics, who happens to be on the list.

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