Tag Archives: what is a billion?

Some Simple Arithmetic

In this year of Covid, we all listen to the news media about the need for the governments of the world to support the economy, and the fiscal price of such support. This has given me the interest to do a bit of simple arithmetic. Arithmetic has no political agenda, and this blog is not about ecological principles, but is rather an attempt to bring the world of numbers into some kind of common sense.

I can start anywhere, but since I am in Canada, I will pick first on it. This week we were told that the Federal Government of Canada took on $ 144.5 billion in debt in 2021, and this has moved the country to a federal debt of more than $ 1 trillion. These numbers are completely opaque to me so I will do some arithmetic on them to encourage understanding.

First, write out one hundred forty-four billion dollars. $144,500,000,000. Now convert this to per capita debt by dividing it by the entire population of Canada, 38 million people, or 38,000,000 give or take a few. This provides us with $ 3802.63 that each of us owe our Canadian government for 2021 to eliminate the 2021 deficit. Now let us imagine that we are very patriotic and wish to pay off all our Federal debt in Canada this year. The simple arithmetic now shows that each of us needs to pay $ 26,316.00 to clear our total Federal debt to zero. Depending on where you are sitting, this is very much money or very little. If you want to buy a house in Vancouver, it will cost you on average $ 1,210,000.00 so that your “debt” to cover our total Federal debt to date would be about 2% of the price of your house. If you live in the rest of Canada, your “debt” would amount to about 5% of the average house cost. I leave you to decide if this is a large problem or a small problem.

The USA is a bit more in Federal debt at $ 28.9 trillion, which works out to about $87,000. per person to pay off the entire current debt now, or about $8400 for each resident to pay off the federal deficit of $2.77 trillion for 2021 alone.

One bank in Canada just spent $ 17 billion to buy another Bank in California. Imagine of even a small part of the $17 billion was used to deliver housing to poor people. We can translate $17 billion or perhaps to be generous say only $10 billion of this excess profit into small houses for homeless people. With these numbers, we could build 1600 small houses for the poor (if we estimate about $60,000 to build a small 700 sq. ft. house in 2021). Or at $ 80,000,000. per medium size hospital, we could build 125 hospitals across Canada.

These kinds of figures are a bit sobering for a retired person, and of course are highly oversimplified since they omit individual debts and state and provinces debts. One’s view of all this seems to fall into two or three camps. First, and most simply we will grow our economy out of the debts as we did after World War II. This simple solution would appear to run into the eternal growth problem. Second, we really have no problem at all since Modern Monetary Theory (Kelton 2020) suggests that governments just keep printing more money and carry on as long as the interest rate stays low, and the printing presses do not wear out. This will work well for large countries but not for small ones, so if you live in Belgium, you will probably have a different view of this than if you live in the USA or China. Third, we will have to pay the piper in one way or another, and we may be in for a rough ride in the future. I do not pretend to understand the economics of all this and hence for me this is only a blog about arithmetic.

If there is a recommendation that might follow from this simple analysis it is that radio and TV announcers should translate these kinds of financial data into real-world numbers, even if it must be something like $1 billion is 10 cups of Starbucks coffee for every adult living in Canada today, or 1 coffee for every adult living in the USA, or $10 a day childcare for one year for 400,000 children. That would at least translate financial data into something useful.  

Kelton, S. 2020.The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy.  Public Affairs, Hatchette Book Group, New York. 336 pp. ISBN-13: 9781541736184.