Calculating the Per Person Cost of the Bailout

by Kevin on April 13, 2009

How many of you have received an e-mail forward from a friend or co-worker recently telling you how much money you would have received if we just split up the bailout? Go ahead, raise your hands.

Yea, that’s what I thought. Quite a few of you.

I’ve overheard people in coffee shops, at lunch, on the elevator, and walking the dog. I’ve been sent multiple e-mails going over the numbers.

The Government Bailout E-mail Forward

The basic idea of the e-mail forwards I received was that if we took the total amount of money the government is spending on the financial crisis and divided it up by the total number of Americans, we would each get $X each.

That $X has varied from e-mail to e-mail I’ve received. I’ve seen everything from $75,000 to $300,000.

Woah, hold up now. Let’s just run the math and see where that puts us.

According to the New York Times, the government has committed $12.1 trillion to fixing the economy/overcoming the financial crisis. That’s committed, not spent. Big difference there. Remember this.

Since the government has only spent $2.5 trillion (roughly) thus far we will use that number. And I’ll go with a nice round number of 300 million for the total number of Americans (men, women, and children). This is a big calculation so you’ll need to open up Excel to run the math — a regular calculator can’t go to the trillions.

Here is 2.5 trillion with all the zeros: 2,500,000,000,000.

Here is 300 million with all the zeros: 300,000,000.

Divide 2.5 trillion by 300 million and Excel spits out this number: $8,333.33.

$8,333.33 per American Citizen Spent on Bailout

That’s what has been spent on a per person basis of the committed bailout funds. Not $75,000. Not $300,000.

That’s a lot of money, true. But at about 1/9th of $75,000 it isn’t nearly as bad as those e-mail forwards tell you it is.

But, wait a second. Not every citizen pays taxes. Surely that number is closer to $75,000, right?

Divide the Bailout by Total Taxpayers

Not every citizen pays taxes. According to Wikipedia in 2007 138 million people paid taxes. You have folks that don’t make enough income to qualify, students, stay at home parents, children, etc.  Let’s round up to 140 million or 46% of the citizen base.

2.5 trillion divided by 140 million = $18,116.

That’s still a lot of money, but no where near $75,000 or $300,000.

Granted if you substitute 12.1 trillion (the total amount committed) for the 2.5 trillion (total amount spent) the numbers get very large very quickly.

12.1 trillion:

  • $40,333 per citizen (men, women, children, non-tax payers)
  • $87,681 per tax payer

Now that’s a ton of money. But again, this isn’t what those e-mail forwards say. They don’t clarify per taxpayer. They don’t clarify spent versus committed. It’s just all thrown together to get you outraged — so that you’ll forward on the misinformation to someone else.

Bailout: Good or Bad?

I’m not here to tell you the bailout is a good or bad thing. I’m just tired of hearing folks squawk out the same information without thinking. Running the math really isn’t that difficult. Think before you hit forward. Add dialogue to the conversation. Get your friends and family to think.

On top of all that the government isn’t just throwing this money away. At least, not entirely. (Yes, I do believe much of it is wasted.)

Some of the funds involved are buying up assets like mortgage notes, bank shares, and commercial paper. While the value of these may be significantly less than what the government is paying for them, they aren’t worthless. Even if they were 10 or 20 cents to the dollar paid that is a lot of money when you are talking trillions of dollars.

From the NY Times article I linked to above, some of the bailout is going toward shoring up money market funds — and the mutual funds have paid over $800 million in fees to the government. That takes a small piece of the sting out. (Very small, but it still counts in my book.)

I’m afraid to ask this, but what the heck. Readers, what do you think of the bailout? Had you received an e-mail forward with a miscalculation of the money spent thus far?

{ 2 trackbacks }

Weekend Reading: Links Of The Week 4/18/2009 | Man Vs. Debt
April 18, 2009 at 10:22 am
I am the 47%. « Berin Kinsman's Dire Blog
October 9, 2011 at 1:02 pm


Baker @ ManVsDebt April 13, 2009 at 10:00 am

Awesome job running the numbers on this. I’ve gotten those e-mails sent to me, as well.

I must say though even at $8,000 this kind of makes my stomach churn. I hope they can reign in some of this spending before we hit the larger numbers at the end of the article!

Nate @ Debt-free Scholar April 13, 2009 at 10:39 am

YIKES! This “bailout” should be called a bailin. Instead of helping our economy, it is hurting us. We need sound economists.


Bob K April 13, 2009 at 11:23 am

I’m sorry, but you need to take into account the future impact of any net increases in government spending which accumulate, year over year, to our debt (i.e. if you believe that all of the increases in government spending are really going to be “temporary”, I’ve got a bridge to sell to you). The New Deal and Great Society ratcheted up spending permanently, not just for a short-term stimulus. The unfunded future commitments for Social Security run into tens of trillions of dollars.

You also need to take into account that this is all deficit spending (i.e. borrowed money) and will have heaps of interest piled onto it.

Lastly, the stimulus is clearly inflationary to the money supply, which history tells us leads to inflation. Inflation will be a hidden cost.

The math isn’t anywhere near as simple as you assume, nor is the impact decidedly sanguine.

Kevin April 13, 2009 at 11:52 am

@Baker and @Nate: Thanks for your comments.

@Bob: Oh please. Get off of the high horse. Did you even read the article?

I am pointing out the mathematical error involved with the e-mails that everyone has been receiving about the bailout.

I am not writing a dissertation on the economic and fiscal impact of the stimulus bills. This blog is not the place for that, in my opinion.

You make excellent points: spending is likely to remain up, interest is a major concern, inflation is a major concern.

But to come in here and act like Mr. Bailout Professor on a simple article is a bit asinine.

As I said — I’m not exactly supportive of what is going on, but it is a bit late for that, no?
I don’t recall even writing that I thought spending might be temporary.

Bob K April 13, 2009 at 2:49 pm

Yes, I read the article, of course. And don’t have such a thin skin. You specifically asked what readers thought of the bailout, and you used overly simple math to explain the impact of the bailout. You solicited comments, I took the time to think about it and reply.

Like you I dislike deceptive emails like the ones you mention. However I think there is more to this than the basic costs that you use as a counter example.

In order to understand the “cost” of any economic event you need to take into account the future impact, not just what happens today. For a (very helpful) blog devoted to helping people get out of debt, I would have thought that understanding future impact of spending decisions would be important and discussion of it welcome.

Susan April 14, 2009 at 6:58 am

I agree with Bob K. Your math is simple enough, but you don’t take everything into the equation either…such as interest and inflation!

Golfing Girl April 14, 2009 at 6:59 am

Thanks for doing the math for us. I think $87,000 given to each tax payer would have immediately and permanently stimulated our economy.

I personally have been against the bailout from the start and have written all of my representatives multiple times. My company’s CEO even wrote a letter to Congress. The bank I work for didn’t need a bailout so our weaker competitors are being put on artificial life support in my opinion.

What happened to survival of the fittest? That’s what made America #1. Not this “everybody gets a trophy and bailout” attitude.

Okay, rant over. 🙂

Kevin April 14, 2009 at 7:39 am

@Bob and Susan: Again, I agree that there are significant costs other than what I’ve stated. But to calculate potential inflation, interest, underfunding of obligations, etc. etc. etc. is well beyond the scope of this blog.

When the government doesn’t even know how to keep all the variables correctly in line to calculate the cost I think it is unrealistic to think I would be capable of figuring it out as well.

I’d rather go after the basic numbers — what we know it is costing right now — that try to estimate what it might cost in the future using a bunch of variables that I create out of thin air.

Again, I agree with your points, but I think it is unrealistic to try and calculate it.

@Golfing Girl: You are exactly right. It’s called capitalism for a reason. Everyone is “too big to fail” … and they let those “too big to fail” organizations that are strong buy some of the weaker ones — making an even larger “too big to fail” company. Crazy!

Bob K April 14, 2009 at 8:03 am

Kevin, I understand.

The Congressional Budget Office does some of the heavy lifting around calculating the impact of congressional acts. The report linked to below, for example, shows that the $787B stimulus will add an additional $347B (above the $787B) to pay interest on the debt incurred on that $787B, for the 10 years 2009-2019 (and at the end of 2019, the number keeps growing yearly). So the $787B is really $787B+$347B, and keeps growing indefinitely into the future.

But I found it very interesting to read the comment in that CBO letter/report: “Such costs are not included in CBO’s cost estimates for individual pieces of legislation and are not counted for Congressional scorekeeping purposes for such legislation”. Yikes – it turns out that Congress is just like most people – they don’t consider the long-term costs of spending on credit! 🙂 For individuals it is a tragedy, but for a country it’s a travesty.

Joe Rivera April 14, 2009 at 9:56 am

First time visitor. Excellent view points from all concerned! Some points I had not considered were made, especially with regards to the true landed costs we will all bear in the future.

David Siteman Garland April 14, 2009 at 4:55 pm

That is some scary numbers. Yikes!

Russell Fascenda April 16, 2009 at 6:48 pm

I got an e-mail that said it would be over $1 million given to every American. You have wonder if that person just didn’t know the difference between million and thousand, or didn’t know what the population of the USA was.

On the Too Big To Fail aspect, I remember years ago when banks were local, in Florida it wasn’t even permitted to have a branch location. There were still holding companies that had several banks, but each was operated independent. Once we gave that up banks started having branches, merging, and now we only have the national names here. I wonder if that was such a great idea.

Roger April 16, 2009 at 7:13 pm

Interesting calculations. Apparently, I am one of the few people who haven’t gotten this email forwarded to me yet. It does help to put the large numbers being brandished about into perspective.

Nona July 12, 2011 at 11:52 am

Arltcies like this really grease the shafts of knowledge.

Hythane April 19, 2009 at 6:31 pm

Excellent points made by all, especially those factoring in the future cost of government intervention in macroeconomics. I thank each of you for taking the time to help quantify and qualify the issue. …RAB

Andrew June 3, 2009 at 9:59 am

We should make our Military a rental income to get money back…we could rent it out to south Korea rather than it costing US Money. Protecting the world it should be making us money! We could ge the debt done with fast!

Dan M July 1, 2009 at 8:57 pm

One more calculation:
Since the “rich” are going to get hit with the tax bill for this, let’s see what the debt looks like per “rich” tax payer. According to the IRS, there were 6,630,582 individual tax payers who made over $145k in 2005.

$2.5 Trillion = $377,040 per “rich” taxpayer
$12.1 Trillion = $1,824,877 per “rich” taxpayer


Tim July 10, 2009 at 12:08 am

Bite me, Andrew. I don’t want to be a piece of traded equipment for hire to some leader of a foreign country that doesn’t give a crap about my life. At least our leaders answer to public opinion and our generals actually give a crap if I come home.

Karsten July 10, 2009 at 10:43 am

As a macroeconomist,

Please allow me to stress that Bob K. is perfectly right in his statements and the blog author’s reaction to his first comment rather immature. One doesn’t have to be able to do all the calculations, but knowing that any debt will incur interest is something any pupil should be able to do. Furthermore, the debt will tie the government’s hands and reduce the ability to react to other occurrences in the future, in other words: the money spent to feed a dead horse that perished because of fundamental structural problems will be missing when another one with an injury needs a temporary support to pay the hospital. Golfing Girl and Kevin with the “too big to fall” note pointed to interesting facettes as well.

Nevertheless, all the discussion has been focused merely on the cost and pretty much left the benefit out of the consideration. It’s a typical American thing when it comes to taxes, the reason why education sucks and why the times of being “numer 1” are long gone and an illusion of the past. The military is, sure, but contrary to populat auto-glorification, nobody else wants America to be the global police, so Andrew’s idea is rather irrealistic. In terms of hours worked per day/week, vacations per year, per capita income, educational levels, crime, retirement and health care, public infrastructure, personal/individual and national debt, quality of construction and appliances (or quality in general), ecology, intact families, widening scissors between the rich and the poor or rural and urban areas, and so on, and so on, the EU and some other countries have long outpaced the US in all international comparisons. All that comprises “quality of life” shows that America dropped the ball a long time ago, just that the two entertainment industries (Hollywood and Washington) keep projecting the image of “number 1” because admitting how rotten the apple is on the inside and facing the consequences would be a shock for the public.

That’s because taxes and governmental interventions and spending are regarded as bad per se — if it is not for a war, although wars are the most costly waste of money that one can think of when comparing the historical figures since the Roman Empire to the present. Sure, there are oil contracts in return, but the profits end up in very few pockets, whereas the costs are socialized across the entire nation. The military industrial complex benefits, the rest pays.

This brings us back to the benefits of public spending. Instead of only looking at the price, it is necessary to look at what you buy for it as well. Would the money be spent on repairing and upgrading the public infrastructure, education, ecology, new sciences and technologies, it could be considered as an investment and blessing for future generations. In this case, however, the money is wasted on supporting a system that has shown to be error prone, as life support for companies who couldn’t compete in the market place, merely to keep a few fat asses on big sofas fat and happy.

The idea to distribute the bailout among the population is erroneous in the first place, because it’s the population who pays for it — not only the tax payers, but everybody in form of higher interest, less government aid because the money and interest are tied up otherwise, tougher credit conditions, economic downturn, and so on. Distributing the money among the people or tax payers would simply mean to take it out of the left pocket to stick it into the right one, with the inevitable loss that the apparatus of redistribution in between eats up.

The justifications for bail-outs are usually “jobs” and the “little shareholder’s retirement”. The real reason are the big shareholders, lobbies and juicy commissions that flow for all the credits. If it was for the jobs and grandparents, the money would have to be divided among them, not among the population. Add to that schools/universities/students/teachers/scientists, welfare moms, unemployed, elderly and handicapped people — dividing the fortune among those would result in an outcry, but it would stimulate the economy much better than dumping it into the same system again, where it ends up as electronic impulses in computers just like before.

Whether or not it is just and fair to distribute the bail-out among the poor and needy is a philosophical question, but from an economical standpoint, it would propel the markets immediately when increased consumption is the objective. These people do not own houses or cars, don’t eat well, can’t afford medicine or even see a doctor, cannot send their children to expensive schools. They have a lot of consumption to do that they never could afford, they would spend it, buy stuff, travel, whatever. Some of them will be smart and save a part in a bank account, which allows banks to hand out credits to the companies that need to purcahse more machines to produce all the stuff that is suddenly being bought, and so on.

We always bark and cry when a poor guy or somebody else who’s just like us gets a break, because we believe that we deserved it more, so “why not me”? We tend to forget that the interest groups behind the scenes stuff their pockets in far more outrageous ways and we hardly ever complain as long as there are panem et circenses. For those interested in the subject, which has nothing to do with conspiracy theory but is sound and fundamental well-researched economic theory, read about ‘Rawl’s veil of ignorance’, ‘small groups versus large groups’ and ‘New Political Economy’.

Again, whether or not bailing out people instead of companies, capital and institutions is better, fair, just or desirable is a philosophical question. From an economic standpoint, though, if heating up the economy is the goal, distributing money among the lower social levels of society (the demand side) is far more effective than dumping it on the supply side all the time, because the demand will go to the suppliers anyway, but not the other way round.

Second, life support for industries that are not competitive cannot make sense in the long run, because it’s a cost without return — for a return, an investment is needed. Instead of supporting the American car industry, which hasn’t really been on par with Asian and European manufacturers since decades, it would be wise to invest in sectors that stand a chance of survival and growth. This will create jobs in new sectors and thereby induce a shift of resources into productive areas instead of wasting it on battles that are already lost. Furthermore, supporting thousands of small businesses is a better strategy in terms of risk diversification, probability of success and wealth distribution than putting all of one’s eggs in a single basket just because the giants are “too big to let them fall”.

Finally, a program of economic stimulation that is debt-financed is always costly due to the bound capital missing in other places and due to interest. A good, sound financing consists in higher taxes for those who do not have to hunger when hit by them. Spending more than one can afford is always twice as expensive and paves the way for another crisis in the future. Governments — and their people — need to learn to save for unforeseen circumstances and not spend more than their income. Now everybody will cry “Higher taxes to stimulate the economy!?!??”. Yes, in the right places, on the right subjects/objects/products/services, that can make sense. The bailout in its current form, without any clear vision, let alone implementation, of a reoprganization of the financial sector, does unfortunately not.

Steve Wright October 20, 2009 at 6:45 am

So, it’s only 8g’s? Big deal! It’s much better that the rich got the money than the poor family of three; heck, would would of family of three do with $24,000? Pay off bills? Credit cards? Their car? Keep up with their mortgage? Anyone who does not see the “bail out” for what it is “stealing from the poor and giving to the rich is a fool. Big buisness and banks own the government.

Randy August 26, 2011 at 11:51 pm

I’m not economic genius, but just imagine 100,000 pumping all of those $8,000 checks back into the economy. Stimulating! (At least more stimulating than the actual effect the money has had)

Armando Simon April 10, 2012 at 11:35 am

Hi there, even if I wish I cant defend in any way the bailouts…you know: privatize the profit and socialize the losses. No my friends, I really believe that if we were living in that capitalism they say we are in…then we should not bailout noone! Let them crash and let another more responsible institution to come forward since these administrators really suck. Dont even talk about the tax money to the militaries man….how much could we get there percapita if we stop being a war nation and stop messing up with other countries? Guess we will be the richest nation in the world again 😉 cya

Comments on this entry are closed.