How much is a trillion dollars?

Updating an old aphorism, “A trillion here, a trillion there, pretty soon you’re talking real money. But how much is a trillion dollars, really? Over the fold an extract from The Economic Consequences of the Pandemic.

The crises of the 21st century have commonly resulted in emergency spending of the order of a trillion dollars or more.

When the Bush Administration made the case for the Iraq War in 2002 and 2003, it was suggested that the venture might pay for itself as had been the case with the first Gulf War [cash contributions from allies more than paid for the direct costs of US forces]. In fact, the director of the National Economic Council, Lawrence Lindsay, was fired for suggesting that the cost might be as much as $200 billion.

By the time the US forces were withdrawn in 2009 estimates of the cost ranged from $2 trillion to more than $3 trillion. To this must be added the costs of the Afghan war and renewed campaign against ISIS.

The stimulus package introduced by the Obama Administration in response to the GFC was held below a trillion dollars in the hope of securing Republican support. Unsurprisingly, the package received no Republicans in the House of Representatives and only three in the Senate. The inadequacy of hte package ensured a weak recovery and contributed to big Republican gains in the 2010 election.

As the saying has it, ‘success has a thousand parents, failure is an orphan’ and most of those who argued for a limited response are now pretending otherwise. Nevertheless it is clear that the primary advocate of a strong response was incoming chair of the Council of Economic Advisers, Christina Rome. Her main opponents were Rahm Emanuel and Larry Summers.

The only benefit of Obama’s restraint was as a source of lessons for his vice-president Joe Biden. Most obviously, the lesson is that erring on the side of restraint is worse than erring on the side of stimulus. Second, that the likelihood of securing Republican support for anything is minimal, so there is no point in proposing an inadequate response in the name of bipartisanship. The final lesson is reflected in the fact that neither Emanuel nor Summers has been given any role, formal or otherwise in the Biden Administration.

The response to the Covid pandemic has on a larger scale than that of the ‘forever wars’ and massively greater than the failed Obama stimulus package. Adding up CARES, the November supplemental package andthe American Rescue Plan and the total expenditure amounts to more than $6 trillion. The impact on the government’s fiscal and monetary position is substantial. But it must be compared to the demands of a pandemic that has killed half a million Americans, sickened many more and shut down much of the global economy.

The Biden Admiminstration has now gone further putting long-term plans for infrastructure (American Jobs Plan) and education (American Families Plan). In each case, the proposal is for $2 trillion over four to eight years. Unlike the stimulus packages, which have been funded by a combination of debt and money creation, about half of these expenditure increases would be offset by increased tax revenues, from a combination of higher tax rates on very high incomes, higher company taxes and increased enforcement of existing laws.

But how much is a trillion dollars really? It amounts to about $3400 for every American, which sounds like a lot. But on average, major crises like those discussed above occur about once every ten years. So, a trillion dollar expenditure involves expenditure of $340 per American per year, or a little over $6 a week. That’s not much more than the price of a Starbucks coffee drink or (for the kids) a McDonalds Happy Meal.

And indeed, the multi-trillion dollar expenditures on the Iraq war, spread over many years, have not had any perceptible impact on the finances of the average household.

Another way to get an idea of scale starts with the observation that a trillion dollars is around 5 per cent of annual GDP (it’s more correct to think in terms of Net National Income, but the difference isn’t huge, and it’s an argument I’ll deal with elsewhere). So, the Covid rescue packages amount to around 30 per cent of one year’s GDP, or about 3 per cent of 10 years’ GDP. Biden’s new proposals are equal to about 20 per cent of annual GDP, which would be 5 per cent of four years’ GDP or 2.5 per cent of eight years GDP.

These are large numbers, but not so large as to imply a radical transformation of the US system.

Yet another way to think about this is to look at the gains made by those in the top 1 per cent of the income distribution as a share of national income. My preliminary estimate is that this group is getting around $2 trillion a year more than they would have if the benefits of productivity growth has been shared evenly.

In summary, the appropriate scale of the public policy response to the pandemic and its economic consequences is measured in trillions of dollars. Rather than being scared of big numbers, we should focus on making sure those trillions are used properly.

Republicans and the end of hard neoliberalism

As I argued recently, the decline of soft neoliberalism in the US Democratic Party can be explained largely in terms of generational replacement. What about hard neoliberalism and the Republican Party?

After four years of the Trump Administration, and a few months of post-election madness, the Republican Party has completed a transition that has been going on for decades. In the 1980s and 1990s, the Republicans were a hard neoliberal party, spending most of their policy effort on tax cuts and deregulation and using white grievance politics to attract votes. Now the situation is reversed. The Republicans are a white grievance party, whose targets include ‘woke corporations’, However, they still attempt to attract support from corporations by advocating tax cuts. While any pretence of principled aversion to regulation has been abandoned, crony capitalist exemptions from regulation are still on offer if the price is right

The core claim of hard neoliberalism was that a free market economy with a modest ‘safety net’ could do a better job of delivering broad prosperity than the welfare state built on the New Deal and Keynesian economics. The optimism of this message, reflected in Reagan’s ‘Morning in America’ turned into triumphalism with the end of the Cold War.

Hard neoliberals supported globalisation, and cheered on the idea that borderless capital would bring governments under control, and put an end to budget deficits. In particular, Republicans supported trade deals like NAFTA

The high point of hard neoliberalism was the 1994 Contract with America, the slogan under which the Republicans gained control of Congress for the first time since 1952. The Contract called for balanced budgets and reduced welfare spending for single-parent families, but also proposed positive measures including an expanded child tax credit.

The commitment to balanced budgets was the first element of hard neoliberalism to be ditched. Responding to the collapse of the dotcom boom, the Bush Administration introduced large, and effectively permanent (fn: the most regressive elements were allowed to expire under Obama) tax cuts. These cuts, along with massive expenditure on the ‘forever wars’ that began after the 2001 terror attacks, pushed the government budget from the surplus that had been achieved under the Clinton Administration into permanent deficit.

For a brief period, the ‘Tea Party’ revolt against the Obama Administration appeared as a reversion to hard neoliberalism, with a non-partisan focus on sound finance. In reality, the Tea Party was a mixture of Republican activists and grifters who used its appeal to solicit donations, largely used to fund well-paid jobs for themselves. Both groups have been prominent among the support base for Donald Trump.

By the time the Republicans turned to Trump, grievance politics were already dominant. Trump discarded long held beliefs about free trade and the need for government to stay out of business. But even during Trump’s Presidency, Congressional Republicans held on to a few elements of the old mixture, such as corporate tax cuts and pro-corporate changes to regulation. It is only in the aftermath of Trump’s attempt to overturn the 2020 election that the alliance between Republicans and big business has been broken.

On the one hand, corporations regularly run afoul of grievance politics, by taking initiatives seen as ‘woke’. On the other hand, the threat posed to constitutional government by the Republican party is now so obvious as to arouse corporate resistance. Corporations with a long-term view of their prospects correctly prefer to risk higher tax rates than to operate in a Trumpist banana republic.

A puzzle remains. On the one hand, as we have seen, Trumpism is the culmination of trends going back many decades. On the other hand, today’s far right Republican party is clearly different in kind from the party that nominated moderate globalist Mitt Romney for the presidency in 2012

One useful metaphor for this process is that of a phase transition, such as from liquid to gas, or dissolved solid to crystal) in physics and chemistry.

To develop the metaphor, think of the Eisenhower-era Republican party as a complicated mixture of many dissolved ingredients, in which the dominant element was the business establishment, and the Trump era party as a crystallised mass of plutocratic economics, racism and all-round craziness. The development over the 60 years between the two has consisted of keeping the mixture simmering, while adding more and more appeals to racial animus and magical thinking (supply-side economics, climate denial, the Iraq war and so on). In this process various elements of the original mix have boiled off or precipitated out and discarded as dregs.

Boiling off is the process by which various groups (Blacks and Northeastern liberal Republicans in C20, liberaltarians more recently) have left the Republican coalition in response to its racism and know-nothingism. The dregs that have precipitated out are ideas that were supposed to be important to Republicans (free trade, scientific truth, classical liberalism, moral character and so on) that turned out not to matter at all.

Trump’s arrival is the catalyst seed crystal that produces the phase change. The final product of the reaction emerges in its crystallised form.

The simple, but unpleasant, arithmetic of a simple UBI

In discussions about Universal Basic Income, lots of people are attracted by the idea of making things as simple as possible. Sadly, that doesn’t work well once you take a closer look.

The simplest UBI would pay every Australian an amount equal to the single age pension, which is just above the poverty line. That’s $20000/yr per person or $500 billion for a population of 25 million, about equal to total Federal government expenditure. That would replace about $180 billion in existing social welfare spending. That leaves $320 billion, approximately equal to total revenue from personal and income taxes.

To fill the gap, we would need either to double income tax revenue, scrap all other public spending, or some mixture of the two. Assuming that’s not feasible, we need to start complicating things. The most obvious step is to treat children differently, for example by giving them half the benefits of adults. But a fixed payment per child isn’t going to be work well, bearing in mind that it would replace existing forms of support which are based on assessments of need.

The key problem is that while tax is mostly calculated on an individual basis, welfare payments are made to households. To get things right, we need to accept that a complex world doesn’t allow for simple solutions.


Over at Club Troppo, Nicholas Gruen links to an interesting (long) article on the relationship between the second and third US presidents (Adams and Jefferson). Adams comes out looking decidedly better, I think

My comment:

This is part of the general process of re-evaluation that has followed, with a long delay, the Civil Rights Movement. An extreme example is Calhoun, presented as part of the ‘Great Triumvirate’ in the traditional history, and now being cancelled everywhere. But most of the US Presidents from Jefferson to Jackson (until recently, the Dems held annual J-J dinners) are being downgraded because they were enmeshed in slavery, the big exception being JQ Adams. Washington has mostly escaped this process, the fact that he freed his slaves in his will being essential.
Not just the early presidents: Grant’s stock is rising as the accusations of corruption against his Administration are seen as the biased judgement of racist historians, while Wilson is falling.

Anzac and Armenia

As the 25th of April approaches, Australian attention is focused on Anzac Day, the anniversary of the disastrous landings at Gallipoli. But the rest of the world is looking at another, even more horrific, and closely related anniversary. On 24 April 1915, as the invasion fleet of which the Anzacs were part approached, the Turkish government began arresting Armenian leaders and intellectuals, the first step in a genocidal campaign which owuld ultimately claim at least a million lives.

The two events were closely related. Both as Christians and as an ethnic minority with a large population in Russia, the Armenians were seen by the Turkish regime as potential traitors. The genocidal policy aimed to reduce Armenian numbers to a point where they could not pose a threat. The imminence of the Gallipoli landings led the regime to put its plans into action. There’s more detail here

It’s reported that President Biden will use the anniversary to declare the murder of the Armenians as genocide, ending decades of equivocation by the US. Among many other consequences, it seems likely that the 24 April anniversary will be more prominently observed in future, casting a shadow over Anzac Day.

The primary moral responsibility for the Armenian genocide belongs to those who ordered it and carried it out, and further guilty attaches to those who have sought to deny it.

But what of the leaders who started and continued the Great War? The German leaders who induced Turkey to enter the war, and did nothing to stop the genocide have their share of guilt. But so do the Russian rulers who sought for decades to break up the Ottoman empire, in particular by presenting themselves as the protectors of Christianity. And the other Entente powers, Britain and France chose to ally themselves with the Czarist regime (in fact, Britain rejected an offer of alliance made by Turkey a few years before the War broke out).

Choosing to go to war means choosing the consequences. While it’s impossible to know in detail what those consequences will be, they will take the form of death and suffering, both for civilians and for soldiers who bear no responsibility for the decision to send them to war.

As we remember the bravery and sacrifice of the Anzacs, we should also remember the futility of the cause in which they fought, and the disasters that ensued, beginning with the Armenians and extending all the way to the rise of even more genocidal rulers, Hitler and Stalin.


A new sandpit for long side discussions, conspiracy theories, idees fixes and so on.

To be clear, the sandpit is for regular commenters to pursue points that distract from regular discussion, including conspiracy-theoretic takes on the issues at hand. It’s not meant as a forum for visiting conspiracy theorists, or trolls posing as such.

Generational replacement and the leftward shift of the Democrats

I’m trying to get the MS of Economic Consequences of the Pandemic finished by May, while chasing a moving target. Over the fold, I return to a favorite topic of mine, the role of generational change. I’ve spent a lot of time pointing out the silliness of most talk about generations, but in the process I’ve learned quite a bit about the nuggets of insight that can be mined by thinking in these terms.

Comments much appreciated. Happy for anyone to raise nitpicking points about typos. There are always plenty in my work, and even more when I’m in a rush. Of course, substantive criticism is always welcome and praise even more so.

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