Thinking About Thinking

What If The Federal Government Was An Average Household?

Posted in Economy, Pop Culture by larrycheng on October 31, 2009

I’m not an economist.  So, it’s hard to make sense of the trillions of dollars that are thrown around when it comes to the federal deficit and national debt.  So, I thought I’d just normalize the federal income statement and debt statistics against a typical household since it makes more intuitive sense to me.  Here we go:

Federal Government (2009 Fiscal Year)

  • Income (Receipts): $2,104,613,000,000
  • Expenses (Outlays): $3,521,734,000,000
  • Surplus/(Deficit):  ($1,417,121,000,000)
  • National Debt:  $11,874,664,000,000

Now we take that data and normalize it against a household with $50,000 in income (which is the US median HH income):

  • Income: $50,000
  • Expenses: $83,667
  • Deficit: ($33,667)
  • Debt: $282,110

Now normalized against a household with $100,000 in income:

  • Income: $100,000
  • Expenses: $167,334
  • Deficit: ($67,334)
  • Debt: $564,221

Now normalized against a household with $250,000 in income (top ~2%):

  • Income: $250,000
  • Expenses: $418,335
  • Deficit: ($168,335)
  • Debt: $1,410,552

Looking at it this way, I have a couple of intuitive observations.  The $100k household is spending $14,000 per month.  Let’s just say they have $4,000/month in mortgage/auto interest expense.  That means the husband and wife are each running up $5,000 per month – each – on their credit cards if they charge everything.  That’s an average of $167 charged per day per person on their credit cards.  That’s hefty spending especially if you presume only modest savings which is probably a fair assumption given our near negative historical savings rates.

Prior to doing this analysis, I thought the normalized debt number would be outrageous.  It’s probably ~2x what it should be.  A $100k household through most mortgage calculators can probably afford a $300k-$350k mortgage.  So, $564k in debt for a $100k household is clearly too high, but not by several orders of magnitude which is what I though it would be.  Anyways, food for thought…