How Much Money is $3.5 Trillion?
The goal of The Constituent has never been to tell readers what to think. Most often, there is no black and white, nor right or wrong answers about what to think. Instead, the world usually a boring mix of grey. Unless, of course, you’re an economist, then finding all the different greys is sort of exciting. The goal of The Constituent is, rather, to help you think. I want to show you how to find the greys so you can figure out just what shade of grey you think something is.
Today’s shade of grey is $3.5 trillion.
This is the proposed amount President Biden wants to spend on his “Human Infrastructure” plan--a plan that will invest in things like education, healthcare, and social programs.
$3.5t is a number so big it is hard for most people to wrap their minds around. But, is it too big? Not big enough? All of that depends on what President Biden is trying to accomplish, though, most people can’t seem to think past the price tag itself. Even Democratic Senators are simply saying $3.5t is too much, no matter what the money goes toward.
So, apparently, whether $3.5t is big enough to accomplish Biden’s goals doesn’t matter--at least not right now. Neither, it seems, do the goals themselves, because at the end of the day, people are just hung up on spending $3.5t on anything.
That means the most important thing to think about is not the bill itself, but the price tag. If Democrats can’t even get past the price tag and into the policy, the bill will never make it to Biden’s desk.
So, how big is $3.5t (assuming that ends up being the final amount)? Well, it’s an admittedly astronomical number. So, let’s break it down.
Something most people don’t seem to grasp when they talk about the price tag is that this $3.5t is spent over the next 10 years. This will average to $350 billion per year. Still a huge number. But, as Mitch McConnell is so fond of doing, we have to ask, “compared to what?”
Well, some researchers at Brown University gave us some interesting context yesterday. They found that, of the $14 trillion spend by the Pentagon since 9/11, somewhere between at least one third, and as much as half has been given to for private, for profit military contractors.
To err on the side of conservatism (not in the political sense), let’s say the number is closer to a third--$5 trillion. Now, to compare this to human infrastructure, ask yourself, did we get $5 trillion of value out of private military contractors in the war on terror? The knee jerk reaction to this may be to say absolutely not, but this reaction may be heavily influenced by the sloppy pullout from Afghanistan last month. We also have to think about the 19 years an 11 months prior to the pullout. Did private contractors do one third of the fighting? One third of the training? One third of anything?
Much of the money was for military hardware--planes, weapons systems, and computers--that our soldiers rely on. These things in and of themselves have seen massive price growth. Factoring all this in, perhaps one third is the right amount to go to contractors, perhaps not. I’m not a military researcher, so I don’t really have an opinion.
But I’m distracting myself because this is an argument of value. Nobody seems to be able to get to the value argument when it comes to human infrastructure.
So, let’s just talk about the price tag. $5 trillion over 20 years is about $250 billion per year. Quite a lot smaller than the $350 billion Biden wants to spend on human infrastructure.
Or is it?
When talking about money, price isn’t everything because inflation changes to current dollar price, but not necessarily the value. The graph above should help readers decide whether human infrastructure is worth $3.5 trillion. Let’s walk through it. I simplified this quite a bit so that it doesn’t get too lost in the weeds, but the implications wouldn’t change no matter how thorough this were to be.
The green bars are the GDP of the United States. The solid lines are the amount of spending as a percentage of the GDP, and the dotted lines are a yearly average. Blue is spending on military contractors, red is the proposed spending on human infrastructure.
In reality, the amount spent in each year will change, and because inflation changes, this would impact the percentage of the GDP of spending in each year. These numbers are not inflation adjusted because almost all of my readers have been alive for all of the last 20 years. I wanted to compare each amount to the actual GDP for that year, since readers will remember what the economy was like in each year. Either way, adjusting for inflation doesn’t really change the result. So, taking an average works just fine.
The average of $250 billion on military contractors as a percent of GDP is the solid blue line. The dash is the average amount over the whole 20 year span--about 1.65% of GDP.
From 2001 to 2021 US GDP grew roughly 40%, or an average of about 3.7% per year. Again, to err on the conservative side, let’s assume the economy only grows by an average of 3% per year over the next decade (which would make the $350 billion a larger share of the GDP). Even by doing this, the amount of money Biden wants to spend on human infrastructure averages roughly 1.34% of GDP--a good deal less than we spent on military contractors, even by the most conservative estimates.
So, how big is $3.5t over 10 years? Turns out, it’s a good bit smaller than $5t over 20 years. Hopefully this comparison makes it easier to wrap your head around the huge dollar figure.
Is $3.5t too much to spend? The answer to that question will be different for every person. I haven’t told you what I think, because what I think doesn’t matter. What you think is what matters. But, rather than just ask if $3.5t is too much money, maybe you should ask if the United States should invest in its own people the same way it invested in military contractors for the wars in Iraq and Afghanistan.
If your answer is yes, then $3.5 trillion for human infrastructure makes sense.
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