Medicare sustainability

WEBVTT
Kind: captions
Language: en

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Voiceover: When we learned about
Social Security, we saw that the people

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who are currently working
are paying their FICA taxes.

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Essentially those revenues are
being used directly to provide the

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Social Security benefits for existing
retirees and other beneficiaries.

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Any surplus goes to the
Social Security Trust.

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When you had this baby boomer
generation, on the left hand side

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of this system right here.

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The baby boomer generation is this huge
population boom that happened after

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World War II after the country was happy
and all the soldiers had come back.

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They produced a lot of babies.

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You get this population boom.

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When this population boom was on
the left hand side of the system,

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they were able to generate a lot of
revenue to supply for the benefits

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for essentially their parents' generation.

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That did help build the surplus.

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The problem is is that they didn't
produce; the population did not grow

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as much in the next generation.

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You could view that as a
problem or a good thing.

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It's a problem in the context of Social
Security because starting recently,

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and over the next few decades,
this baby boom generation is going

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to move onto the right
hand side of this equation.

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We saw that they will start to draw
down even this surplus fairly soon.

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Because of this demographic
change, the Social Security surplus

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will be completey depleted
between 2030 and 2040.

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Medicare is very similar.

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You have some portion of the
FICA tax is for Medicare.

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That revenue is used to pay for the
health benefits of the retirees.

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Any surplus goes into a Medicare trust.

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That Medicare trust, the formal name
is the Hospital Insurance Trust Fund.

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The problem with Medicare is
that the situation is even worse.

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The Medicare trust, or we could
say the Medicare system is
already running at a deficit

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meaning that they're spending
more money on the right than
they're getting in on the left.

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They're already starting to draw down,

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already starting to draw down their trust.

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Social Security, at least the trust
is continuing to grow until 2023.

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That's our best estimate right
now; then it'll start drawing down.

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It'll get depleted between 2030 and 2040.

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In Medicare, the situation's a lot worse.

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In Medicare, we are already
starting to draw down the trust.

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We are already spending more on
beneficiaries than we are taking down;

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than we were taking in FICA revenues.

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The entire trust, based on our
current assumptions, will probably

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be depleted in the next ten
years; depleted in next ten years.

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What makes Medicare especially
troubling, despite the fact that it's in

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a worse financial position, is that
these costs are growing even faster.

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I want to be clear.

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A lot of people think that the ....

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For Social Security, the main
problem with this system over here is

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the demographic changes.

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You have this huge population
that's retiring, the baby boomers,

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which makes this not sustainable.

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With Medicare, that's also going on.

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What makes Medicare even a bigger
problem than Social Security

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is above and beyond those
demographic changes, above and beyond

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these ... this baby boomer
generation retiring,

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instead of paying into Medicare,
taking benefits from Medicare,

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the big problem is that you actually
have medical health care costs

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For Social Security, these people's
benefits could just go up with inflation.

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For Social Security, these people's
benefits could just go up with inflation.
For Social Security, these people's
benefits could just go up with inflation.

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For Medicare, the benefits go up
with the cost of medical care.

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That's going well above
the cost of inflation.

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You have the situation where, based on
current benefits, and our best assumptions

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about the economy and the FICA taxes
coming in, you have a reality where if you

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had to give the current benefits,
and if you expect medical costs,

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health care costs to continue to
increase at the rate they're doing,

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and there's no sign frankly that
it is stopping, then you have

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this reality that Medicare left
unchecked could; right now it's roughly

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about 23 percent of our budget,
23-24 percent of our budget,

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or about four percent of our GDP.

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Here we are in 2011.

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It's about four percent of our GDP
we're spending on Medicare and Medicaid.

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Medicaid is essentially health
benefits for mainly the poor.

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It's run by the states, but
it gets federal funding.

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Right now, that's four percent of GDP.

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Because of the cost growth in health
care costs, if we leave it completely

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unchecked over the next 50-60 years, it
could grow to 15-16-17 percent of GDP.

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Just to be clear, that's
the percentage of GDP

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that's roughly our entire federal budget.

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This has a potential, if we don't
grow our budget any, to acutally

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crowd out a lot of other things.

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Just to understand this graph a
little bit, they show the part and the

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cost of Medicare, the part of the
growth due to different things.

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This is the effect of aging population.

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This is the effect of excess cost growth.

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This is the interaction of the two.

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To understand why that makes
sense, you just have to think

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about the total cost being
the product of the number.

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Maybe you could say the
net number of recipients.

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Some people are paying in as well.

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This will hopefully help you
understand what I'm talking about.

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Number of recipients, times
the cost per recipient.

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Let's say that this is
the cost per recipient.

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Cost per recipient, cost per recipient.

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If you take the number of recipients
times the cost per recipient,

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you're going to get the total cost.

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Let's say that's the total cost today.

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That would be the area of that square.

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We're just multiplying the base
times the height, current costs.

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Current annual cost, current cost.

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Because of demographic changes,
you're going to have some increase

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in the net number of recipients.

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You're going to have some increase there.

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Because of medical cost growth,
you're going to have a big increase

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in the cost per recipient.

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This thing is going to increase much more.

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If you go to some future point,
and you can pick your future point.

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I'm really just trying to
make you understand why

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we have these three categories.

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The total cost is going to be
the total cost per recipient ,

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that has grown dramatically, times
the total number of recipients.

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Now you're talking about this area.

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This area is going to be the total cost.

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If you think about how much of
this total cost is due purely
to the increased cost growth,

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it would be this part right over here.

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This part would be the amount,
the cost, the increase in the area

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purely due to the increased cost growth.

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That would be this part of
the graph right over here.

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What part of this increased
area is due purely

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to the increased number of recipients?

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That would be this part of the graph right
over here purely due to the increased

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number of recipients.

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That is right over here,
effect of aging population.

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You have some part of this
area that's created by both the

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increase in the number of
recipients and the increase in cost.

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That's going to be this area
right over here, which is

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this part of the graph.

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When people talk about the unsustainable
... one we have an unsustainable debt

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to begin with.

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The second thing is is that the
liabilities, the obligations that we have

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aren't even counted in
the government deficit.

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These are the things that
are really, really scary.

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Something has to give.

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In all of this, the single
factor that's driving

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most of the scariness is
Medicare in particular.

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Not just Medicare, but it's not
just the demographic changes,

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but specific to Medicare it's
the increased cost of healthcare.

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If somehow that nut can be cracked, if
healthcare can all of a sudden grow maybe

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just with inflation, or maybe even
slightly faster than inflation,

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but not at the rate
it's growing right now.

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Then you could, to a large degree,
mitigate the scariness of what's going on

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with our obligations.


FICA tax

WEBVTT
Kind: captions
Language: en

00:00:00.457 --> 00:00:02.040
In the first video
on Social Security,

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I keep talking about how the
tax that you pay for Social

00:00:05.340 --> 00:00:08.189
Security is called the FICA tax.

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What I want to do in
this video is, one,

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let you know what FICA actually
stands for, and then think

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a little bit about how it
is actually calculated.

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So first, what
does it stand for?

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Literally, it just stands for
Federal Insurance Contributions

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Act.

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That's the acronym.

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And so it'd be FICA,
and then some people

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will call it FICA tax.

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And this isn't just to
support Social Security,

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or to be technically correct,
to support the old age

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survivors and
disability insurance.

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Part of FICA tax is for that,
and part is for Medicare.

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And so to make things
clear, the part

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that is Social Security,
or what we associate

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as Social Security, which
is really the OASDI--

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did I get that right?

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OASDI.

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So part of it is
for Social Security,

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and then that part is
12.4% of the gross salary.

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But half of this is paid
for by the employer,

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half is paid by the employee.

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And we'll do a
calculation in a second.

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So 6.2% and 6.2%.

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The part that's paid
by the employer, that's

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part of the payroll tax,
stuff that the employer

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pays above and beyond
the gross income

00:01:25.690 --> 00:01:27.190
that they're giving
to the employee.

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And we'll do that
calculation in a second.

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The other thing that FICA
tax is used for is Medicare.

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And this is for a total amount
of 2.9% of an employee's

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gross salary, or 1.45% from the
employer as part of the payroll

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tax and 1.45% from the employee.

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And if you add
these two things up,

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you get 15.3% total FICA tax.

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15.3% where, once again, half
is paid by the employer and half

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is paid by the employee.

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Now, let's just do a calculation
so that it makes a little bit

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more tangible sense
of what I'm even

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talking about with
this FICA tax.

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So let's imagine that
you make $100,000 a year.

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And it's a nice number,
because it makes the math easy.

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Then your employer--
employer, employee,

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let me write it like this.

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Employer, employee.

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So for Social
Security, your employer

00:02:25.160 --> 00:02:27.340
will contribute 6.2% of this.

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So above and beyond paying
the $100,000 gross salary,

00:02:29.810 --> 00:02:35.930
they will also pay
6.2%, or $6,200.

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And the employee
will also pay $6,200.

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And that will be deducted
from their paycheck,

00:02:42.540 --> 00:02:46.400
so what they get will
be net of the $6,200.

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And then for Medicare--
let me do that in pink.

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Then for Medicare,
the employer will

00:02:52.940 --> 00:02:56.980
contribute $1,450,
once again above

00:02:56.980 --> 00:02:59.860
and beyond the gross
salary of $100,000.

00:02:59.860 --> 00:03:06.490
And the employee will pay $1,450
out of their gross salary.

00:03:06.490 --> 00:03:11.680
So the total amount that
is paid by the employer

00:03:11.680 --> 00:03:17.790
is $7,650 in payroll tax
for this one employee.

00:03:17.790 --> 00:03:19.690
And the total amount
by the employee

00:03:19.690 --> 00:03:24.070
is the exact same
amount, $7,650.

00:03:24.070 --> 00:03:27.050
So just to be clear, if you
wanted to hire an employee

00:03:27.050 --> 00:03:30.230
and pay them $100,000
in gross salary,

00:03:30.230 --> 00:03:35.820
you actually would have to set
aside $100,000 and the $7,650.

00:03:35.820 --> 00:03:38.460
So the employer-- the
total that the employer's

00:03:38.460 --> 00:03:46.070
paying-- or let me just
think of it this way.

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The total that the
employer has to set aside,

00:03:52.240 --> 00:03:54.130
if you include the
salary, is going

00:03:54.130 --> 00:04:01.460
to be $107,650 so they
can cover the gross salary

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plus this payroll tax over here.

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The net that the
employee is getting--

00:04:09.790 --> 00:04:12.020
and actually, this
isn't even the net.

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I shouldn't even
call it the net.

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The employee, after
paying FICA taxes,

00:04:16.380 --> 00:04:20.084
is going to be the
$100,000 minus the $7,650.

00:04:20.084 --> 00:04:21.750
But I won't even write
that number down.

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I mean, what is that?

00:04:22.625 --> 00:04:28.600
That's $92,350,
because that's before

00:04:28.600 --> 00:04:30.560
paying just the
traditional federal income

00:04:30.560 --> 00:04:32.690
tax and the traditional
state income taxes.

00:04:32.690 --> 00:04:34.480
So that's going to cut
it down a good bit.

00:04:34.480 --> 00:04:36.355
So the employee's going
to take home probably

00:04:36.355 --> 00:04:38.920
on the order of
$60,000 to $70,000,

00:04:38.920 --> 00:04:40.671
so above and beyond
this thing right here.

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So even though the
employer's paying this much,

00:04:42.628 --> 00:04:44.060
the employee's
getting a lot less

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in terms of what they
get to take home.

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Now, one thing that
I think that is worth

00:04:49.710 --> 00:04:52.950
mentioning is unlike
traditional federal income

00:04:52.950 --> 00:04:55.390
tax-- and traditional
federal income tax

00:04:55.390 --> 00:04:58.390
the first several 10s of
thousands of dollars you make

00:04:58.390 --> 00:04:59.150
are not taxed.

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And then as you go
up the brackets,

00:05:01.340 --> 00:05:04.210
each incremental dollar, as you
enter one bracket or another,

00:05:04.210 --> 00:05:06.380
you start to pay a higher
percentage on those.

00:05:06.380 --> 00:05:08.540
The FICA tax is
actually very different.

00:05:08.540 --> 00:05:11.440
Some people would even call
it a regressive income tax.

00:05:11.440 --> 00:05:13.330
And that's because
you only pay the FICA

00:05:13.330 --> 00:05:16.440
tax on the first
$106,000-- or at least this

00:05:16.440 --> 00:05:18.850
is the numbers in 2011.

00:05:18.850 --> 00:05:23.500
You only paid on
the first $106,800.

00:05:23.500 --> 00:05:27.420
So someone who makes $200,000
will pay the same FICA tax

00:05:27.420 --> 00:05:31.486
as someone who makes $106,800.

00:05:31.486 --> 00:05:33.360
So you only pay on the
percentage below that.

00:05:33.360 --> 00:05:36.740
And the reason why is that
the person making the $200,000

00:05:36.740 --> 00:05:38.920
will get the exact
same benefits, as well,

00:05:38.920 --> 00:05:43.500
as the person who pays $106,800.

00:05:43.500 --> 00:05:47.100
And this number, essentially,
they try to index it roughly

00:05:47.100 --> 00:05:47.990
to inflation.

00:05:47.990 --> 00:05:49.650
So it will go up over time.

00:05:49.650 --> 00:05:53.477
But to some degree, someone
who makes, let's say-- well,

00:05:53.477 --> 00:05:55.060
someone who makes
below this threshold

00:05:55.060 --> 00:05:57.190
is going to pay this percentage.

00:05:57.190 --> 00:05:58.602
Between them and
their employers,

00:05:58.602 --> 00:06:00.810
they're going to pay this
percentage of their income.

00:06:00.810 --> 00:06:02.430
Well, someone who makes
much more than this

00:06:02.430 --> 00:06:04.760
will actually pay a smaller
percentage of their income,

00:06:04.760 --> 00:06:07.100
but they'll end up
getting the same benefits.

00:06:07.100 --> 00:06:09.570
And so that's one reason why
it's considered regressive,

00:06:09.570 --> 00:06:11.330
is that as you make
more money, you're

00:06:11.330 --> 00:06:12.830
actually paying a
smaller percentage

00:06:12.830 --> 00:06:15.020
of your income on FICA tax.

00:06:15.020 --> 00:06:17.880
And the other reason why
it's considered regressive

00:06:17.880 --> 00:06:21.360
is actually on the benefit
side, because obviously someone

00:06:21.360 --> 00:06:24.000
who-- if you have two people
receiving Social Security

00:06:24.000 --> 00:06:26.270
benefits-- so you have
this person-- so this

00:06:26.270 --> 00:06:27.820
is when they turn 65.

00:06:27.820 --> 00:06:29.470
Let me put it this way.

00:06:29.470 --> 00:06:31.790
So let's say that
you have two people.

00:06:31.790 --> 00:06:33.770
They work their whole lives.

00:06:33.770 --> 00:06:35.590
And let's say they
both retire at 65,

00:06:35.590 --> 00:06:38.060
although that retirement
age is increasing.

00:06:38.060 --> 00:06:40.780
It's slowly being indexed up.

00:06:40.780 --> 00:06:42.540
And then they retire.

00:06:42.540 --> 00:06:45.601
It's known that the wealthier
people or wealthier--

00:06:45.601 --> 00:06:47.850
and there's also demographics
based on race and things

00:06:47.850 --> 00:06:48.620
like that.

00:06:48.620 --> 00:06:51.100
But it's known that wealthier
people actually live longer,

00:06:51.100 --> 00:06:53.980
so they actually get benefits
for a longer period of time.

00:06:53.980 --> 00:06:58.020
So they're actually able to
get their benefits for longer.

00:06:58.020 --> 00:06:59.850
So it depends where
you fall into it.

00:06:59.850 --> 00:07:02.050
Likely that even though
there's this cap,

00:07:02.050 --> 00:07:04.920
someone higher up the
income chain also probably

00:07:04.920 --> 00:07:06.500
did pay more into it.

00:07:06.500 --> 00:07:08.280
But they're also
getting a bigger check

00:07:08.280 --> 00:07:09.450
for paying more into it.

00:07:09.450 --> 00:07:10.970
The check that
you eventually get

00:07:10.970 --> 00:07:14.610
is based, to some degree,
on what level of FICA tax

00:07:14.610 --> 00:07:15.290
you were paying.

00:07:15.290 --> 00:07:17.520
And they're very
well likely to be

00:07:17.520 --> 00:07:20.730
able to collect these payments
for longer than someone who

00:07:20.730 --> 00:07:26.500
maybe doesn't have quite the
same, I guess, quality of life

00:07:26.500 --> 00:07:29.990
and doesn't actually
live as long.


Social security intro

WEBVTT
Kind: captions
Language: en

00:00:00.510 --> 00:00:04.110
When people refer to Social
Security in the United States,

00:00:04.110 --> 00:00:08.220
they're really referring
to the OASDI, which

00:00:08.220 --> 00:00:19.815
stands for Old Age Survivors
and Disability Insurance.

00:00:23.830 --> 00:00:27.190
And it is exactly what
this acronym implies it is.

00:00:27.190 --> 00:00:30.530
It provides retirement
benefits when someone retires.

00:00:30.530 --> 00:00:33.050
Or if someone passes
away before that

00:00:33.050 --> 00:00:36.180
and they had paid into, or
paid into this social security

00:00:36.180 --> 00:00:39.860
insurance, this OASDI,
then if they pass away,

00:00:39.860 --> 00:00:42.480
it'll provide benefits
for their survivors.

00:00:42.480 --> 00:00:44.370
Or if that person
doesn't pass away,

00:00:44.370 --> 00:00:46.390
but becomes disabled
and can't work anymore,

00:00:46.390 --> 00:00:49.030
it'll also provide
benefits for them.

00:00:49.030 --> 00:00:51.500
Now, one very, very
common misconception

00:00:51.500 --> 00:00:53.340
with Social Security
is that it is somehow

00:00:53.340 --> 00:00:58.670
a form of a retirement savings
account like a 401k or an IRA.

00:00:58.670 --> 00:00:59.450
It is not that.

00:00:59.450 --> 00:01:00.950
From the government's
point of view,

00:01:00.950 --> 00:01:03.850
they actually do it more
as a kind of insurance.

00:01:03.850 --> 00:01:07.150
But in reality, all it is
a way of current workers

00:01:07.150 --> 00:01:10.290
to directly pay for the
retirement of existing

00:01:10.290 --> 00:01:10.990
retirees.

00:01:10.990 --> 00:01:14.120
And the reason why they did this
is when it started off in 1935,

00:01:14.120 --> 00:01:17.080
they wanted the current retirees
to immediately get benefits.

00:01:17.080 --> 00:01:19.330
They didn't want to wait
for the current generation

00:01:19.330 --> 00:01:21.600
to save enough money and
only use their money.

00:01:21.600 --> 00:01:23.540
So they made it kind
of a direct transfer

00:01:23.540 --> 00:01:25.620
from the current
workers to the people

00:01:25.620 --> 00:01:27.820
who are using the benefits.

00:01:27.820 --> 00:01:29.410
And just to make
the point clear,

00:01:29.410 --> 00:01:31.380
a traditional
retirement account--

00:01:31.380 --> 00:01:36.070
so let's say this is me over
my career, and then I retire.

00:01:36.070 --> 00:01:37.660
And this is me after I retire.

00:01:37.660 --> 00:01:39.500
And so this is as I get older.

00:01:39.500 --> 00:01:43.250
So this is I'm aging
as we go to the right.

00:01:43.250 --> 00:01:45.200
So while during
my working years,

00:01:45.200 --> 00:01:47.310
in a traditional
retirement plan,

00:01:47.310 --> 00:01:51.880
I would be putting money
into some account someplace.

00:01:51.880 --> 00:01:55.200
And so this would be the
case of an IRA or 401k.

00:01:55.200 --> 00:02:00.090
And so this is an account--
and with the cases of IRAs

00:02:00.090 --> 00:02:04.329
and 401Ks are tax deferred
and you can invest this.

00:02:04.329 --> 00:02:06.370
You invested in, you can
get some interest on it.

00:02:06.370 --> 00:02:08.560
So it can grow as
you invest it, as you

00:02:08.560 --> 00:02:10.600
put more and more money into it.

00:02:10.600 --> 00:02:11.920
And you invest it well.

00:02:11.920 --> 00:02:14.250
And then once you
retire, that money

00:02:14.250 --> 00:02:15.960
that you directly
placed there, will

00:02:15.960 --> 00:02:17.755
be used to fund your retirement.

00:02:22.000 --> 00:02:24.020
Social Security is not this.

00:02:24.020 --> 00:02:25.790
When you pay the
FICA tax, and we'll

00:02:25.790 --> 00:02:28.160
talk about that in more
detail in future videos.

00:02:28.160 --> 00:02:30.276
When you pay that
tax, you are actually

00:02:30.276 --> 00:02:32.150
not putting it into a
little separate account

00:02:32.150 --> 00:02:34.440
that you will then
tap into later.

00:02:34.440 --> 00:02:36.030
You are actually
for the most part,

00:02:36.030 --> 00:02:40.420
paying current retirees,
or survivors, or people

00:02:40.420 --> 00:02:43.430
with disabilities, you're
paying their benefits.

00:02:43.430 --> 00:02:46.860
So the way Social Security
works is more like this.

00:02:46.860 --> 00:02:49.190
You have all of the current
workers paying their FICA

00:02:49.190 --> 00:02:49.689
taxes.

00:02:54.000 --> 00:02:58.220
And right now, at least I think
these numbers are as of 2010,

00:02:58.220 --> 00:03:01.675
you have 157 million people
paying into Social Security.

00:03:04.690 --> 00:03:07.655
And you have 54 million people
receiving Social Security.

00:03:11.740 --> 00:03:13.780
And so this ratio
is pretty good.

00:03:13.780 --> 00:03:17.780
This money is right
now, as of 2010, 2011,

00:03:17.780 --> 00:03:21.740
it's enough money to pay
for all of these benefits.

00:03:21.740 --> 00:03:24.920
And actually we are running
a little bit of a surplus.

00:03:24.920 --> 00:03:29.170
And that surplus is put into
a separate trust account.

00:03:29.170 --> 00:03:32.100
And it's normally informally
call the Social Security Trust,

00:03:32.100 --> 00:03:35.280
or the more formal name
is the OASDI Trust.

00:03:35.280 --> 00:03:40.330
But I'll just call it the
Social Security Trust.

00:03:40.330 --> 00:03:43.090
And the idea behind this is,
OK, we're running a surplus now.

00:03:43.090 --> 00:03:45.910
We can cover at least all
of our current obligations

00:03:45.910 --> 00:03:47.340
and we have a surplus.

00:03:47.340 --> 00:03:50.110
And then as more baby boomers
retire, and more people

00:03:50.110 --> 00:03:51.650
go from this side
of the equation

00:03:51.650 --> 00:03:53.260
to this side of
the equation, then

00:03:53.260 --> 00:03:56.210
we can use the trust to
kind of make up any deficits

00:03:56.210 --> 00:03:56.830
we might have.

00:03:56.830 --> 00:03:58.420
Because as we have more
people on the right,

00:03:58.420 --> 00:03:59.860
we're going to
have to spend more.

00:03:59.860 --> 00:04:01.640
And we're going to have
fewer people on the left.

00:04:01.640 --> 00:04:03.223
So we're going to
have less coming in.

00:04:03.223 --> 00:04:05.580
But look, we had all that
saved up surplus before.

00:04:05.580 --> 00:04:06.950
And so we can use that.

00:04:06.950 --> 00:04:09.780
And that might sound like
overall a decent idea,

00:04:09.780 --> 00:04:12.220
but the problem
is that this trust

00:04:12.220 --> 00:04:15.260
is going to start
shrinking because

00:04:15.260 --> 00:04:18.170
of all the retiring
of the baby boomers.

00:04:18.170 --> 00:04:21.649
And we estimate 2023-- and
these things move around based

00:04:21.649 --> 00:04:24.870
on how much benefits
to retirees get,

00:04:24.870 --> 00:04:27.120
the economy, how many
people are paying into it,

00:04:27.120 --> 00:04:29.170
and a whole other
bunch of assumptions.

00:04:29.170 --> 00:04:30.770
But we estimate
is going to start

00:04:30.770 --> 00:04:33.360
shrinking in roughly
a decade from now.

00:04:33.360 --> 00:04:35.370
And the really bad
thing is this thing

00:04:35.370 --> 00:04:38.240
will be completely depleted.

00:04:38.240 --> 00:04:41.030
So we won't be able to
provide that extra funding

00:04:41.030 --> 00:04:42.860
for this kind of,
this deficit, not

00:04:42.860 --> 00:04:44.930
having enough money to
pay for all the retirees.

00:04:44.930 --> 00:04:49.110
It will be completely depleted
sometime between 2030 or 2040.

00:04:49.110 --> 00:04:50.797
And once again, this
is a good ways out.

00:04:50.797 --> 00:04:52.380
So it's based on a
lot of assumptions.

00:04:52.380 --> 00:04:53.830
But it's not that far out.

00:04:53.830 --> 00:04:55.280
This is actually
going to affect--

00:04:55.280 --> 00:05:02.580
let's see I'm right now 35 in
2011, so in 2031, I'll be 55.

00:05:02.580 --> 00:05:05.240
And this will essentially
affect my retirement.

00:05:05.240 --> 00:05:07.850
By the time I retire,
in I don't know,

00:05:07.850 --> 00:05:10.030
hopefully I'm around 2042.

00:05:10.030 --> 00:05:13.560
Actually I'll probably have to
be 67, so what is that, 2045

00:05:13.560 --> 00:05:15.550
or whatever I'm going to retire.

00:05:15.550 --> 00:05:17.930
Based on the current
taxes that are coming in,

00:05:17.930 --> 00:05:20.590
the current level of the Social
Security Trusts, the interest

00:05:20.590 --> 00:05:22.840
that the Social Security Trust
is getting on its invested

00:05:22.840 --> 00:05:24.256
money, and it's
all being invested

00:05:24.256 --> 00:05:25.750
in Treasury securities.

00:05:25.750 --> 00:05:27.030
So it's invested in Treasury.

00:05:27.030 --> 00:05:28.470
So it's not getting crazy.

00:05:28.470 --> 00:05:31.314
Interest it's getting only a
few percentage points per year.

00:05:31.314 --> 00:05:32.730
But it has to
because it has to be

00:05:32.730 --> 00:05:34.350
invested in a very safe place.

00:05:34.350 --> 00:05:38.060
So given this, there are
three possible eventualities.

00:05:38.060 --> 00:05:40.794
Either the FICA tax goes up.

00:05:40.794 --> 00:05:42.710
So based on the number
of people working here,

00:05:42.710 --> 00:05:45.560
you get more revenue per
person right over here.

00:05:45.560 --> 00:05:48.380
Eventuality number
two is the benefits

00:05:48.380 --> 00:05:53.090
go down, or even
possibly disappear.

00:05:53.090 --> 00:05:56.090
And eventuality three
is, by this time frame

00:05:56.090 --> 00:05:58.440
right over here, that other
parts of the government's

00:05:58.440 --> 00:06:00.997
budget is going to have to
fund Social Security to make up

00:06:00.997 --> 00:06:01.580
the shortfall.

00:06:01.580 --> 00:06:03.996
Because you don't have enough
revenue coming from the FICA

00:06:03.996 --> 00:06:05.570
tax and you don't
have enough money

00:06:05.570 --> 00:06:07.160
from the Social Security Trust.

00:06:07.160 --> 00:06:10.600
So other parts of the budget.

00:06:10.600 --> 00:06:12.270
But as we'll see,
there wont really

00:06:12.270 --> 00:06:14.230
be a lot of other
parts to the budget

00:06:14.230 --> 00:06:17.280
because you also have
Medicare also growing.

00:06:17.280 --> 00:06:19.570
And actually Medicare is a
really unsustainable one,

00:06:19.570 --> 00:06:22.410
the one that's growing even
faster than Social Security.

00:06:22.410 --> 00:06:24.780
So this is very much in
question whether there's even

00:06:24.780 --> 00:06:27.480
another part of the budget
that you could possibly even

00:06:27.480 --> 00:06:29.310
take from.


Government's financial condition

WEBVTT
Kind: captions
Language: en

00:00:00.615 --> 00:00:01.947
Voiceover: What I want
to do is this video,

00:00:01.947 --> 00:00:04.486
is dig a little bit
deeper into the deficit.

00:00:04.486 --> 00:00:06.344
Just so that you can
get the data yourself,

00:00:06.344 --> 00:00:09.066
they're all available at this document

00:00:09.066 --> 00:00:11.476
which is hosted by the
Department of Treasury

00:00:11.476 --> 00:00:14.140
so you know that I'm not
making up these numbers.

00:00:14.140 --> 00:00:16.744
Just to review, the
deficit is really a measure

00:00:16.744 --> 00:00:19.627
of how much you are
overspending in any given year.

00:00:19.627 --> 00:00:24.067
If you look at the deficit, and I'm
going to focus on 2010 in this video,

00:00:24.067 --> 00:00:27.800
in 2010, the government spent,

00:00:27.800 --> 00:00:30.270
so the spending for
the government in 2010,

00:00:30.270 --> 00:00:34.951
was about $3.5 to $3.6 trillion dollars,

00:00:34.951 --> 00:00:38.758
and it brought in in mainly tax revenues,

00:00:38.758 --> 00:00:39.936
but it has a few other sources,

00:00:39.936 --> 00:00:44.545
but mainly tax revenues, it brought
in about $2.2 trillion dollars.

00:00:44.545 --> 00:00:46.668
Based on this the overspending,

00:00:46.668 --> 00:00:52.607
or the amount of spending beyond
the revenues, or the deficit,

00:00:52.607 --> 00:00:57.604
the deficit in 2010 was
$1.3 trillion dollars.

00:00:57.604 --> 00:01:00.341
What I want to be clear on,
this is only one way to account

00:01:00.341 --> 00:01:02.884
for spending versus revenues.

00:01:02.884 --> 00:01:04.289
This is not the way that most

00:01:04.289 --> 00:01:07.935
companies would primarily
report their own income

00:01:07.935 --> 00:01:09.403
over the course of the
year, or their own cost,

00:01:09.403 --> 00:01:12.208
or their own loss over
the course of the year.

00:01:12.208 --> 00:01:15.850
Most companies would not just have
to account for their cash outlays.

00:01:15.850 --> 00:01:20.441
That's all we're considering in
this $3.5 to $3.6 trillion dollars.

00:01:20.441 --> 00:01:23.695
A traditional company would
also have to include any other

00:01:23.695 --> 00:01:26.478
liabilities or any other
obligations they're taking on.

00:01:26.478 --> 00:01:28.772
For example, if I hire you and I promise

00:01:28.772 --> 00:01:32.072
to pay you $50,000 over the
course of the next year,

00:01:32.072 --> 00:01:33.869
and I'm going to pay them to you in cash,

00:01:33.869 --> 00:01:36.694
but I also promise that when you retire,

00:01:36.694 --> 00:01:39.022
I'm going to pay you $10,000.

00:01:39.022 --> 00:01:42.441
I'm going to give you a
$10,000 per year pension.

00:01:42.441 --> 00:01:43.944
On a traditional income statement,

00:01:43.944 --> 00:01:46.941
I would not just expense the $50,000.

00:01:46.941 --> 00:01:49.704
I would definitely put
that in my expenses,

00:01:49.704 --> 00:01:51.759
and the government would
put that in their expenses,

00:01:51.759 --> 00:01:53.353
but I would also have to account

00:01:53.353 --> 00:01:54.542
for this liability that I'm taking on.

00:01:54.542 --> 00:01:55.400
I would also have to say,

00:01:55.400 --> 00:01:58.537
"Look, in order for me to
be able to afford a $10,000

00:01:58.537 --> 00:02:01.734
"pension at some future date,
I have to make some estimates

00:02:01.734 --> 00:02:04.072
"about when you would retire
and how long you would live,

00:02:04.072 --> 00:02:06.938
"and what interest I could get
on money, and all of the rest."

00:02:06.938 --> 00:02:09.707
But I would have to say I would have
to set aside some amount of money

00:02:09.707 --> 00:02:12.656
so that in the future I
can meet that obligation.

00:02:12.656 --> 00:02:16.126
Maybe I have to set
aside $2,000 this year,

00:02:16.126 --> 00:02:18.318
and hope it grows properly over the course

00:02:18.318 --> 00:02:20.458
of the next 20-30 years until you retire

00:02:20.458 --> 00:02:23.085
so that I can afford to pay you that much.

00:02:23.085 --> 00:02:25.049
Who knows? But I would
also have to account

00:02:25.049 --> 00:02:27.118
for it right here, that extra liability.

00:02:27.118 --> 00:02:28.547
The government, in the
calculation of the deficit,

00:02:28.547 --> 00:02:32.038
does not account for that extra liability.

00:02:32.038 --> 00:02:33.998
It is taking on other liabilities.

00:02:33.998 --> 00:02:37.026
It is making these pension
promises to government employees.

00:02:37.026 --> 00:02:39.626
It has obligations to the veterans

00:02:39.626 --> 00:02:41.586
and Veteran's Affairs and all of that.

00:02:41.586 --> 00:02:45.467
That is not accounted for in the deficit.

00:02:45.467 --> 00:02:49.266
It is accounted for in the gross costs.

00:02:49.266 --> 00:02:53.040
You see here, we said when
we look at just the budget,

00:02:53.040 --> 00:02:56.700
we're talking $3.5 to
$3.6 trillion dollars.

00:02:56.700 --> 00:02:58.514
That's direct cash outlays,
or mostly direct cash outlays.

00:02:59.397 --> 00:03:02.602
If you include all of this other stuff,

00:03:02.602 --> 00:03:09.588
then it balloons to $4.5 trillion
dollars, $4.5 trillion dollars.

00:03:09.588 --> 00:03:11.158
In a previous video I mentioned

00:03:11.158 --> 00:03:12.664
that the government right now

00:03:12.664 --> 00:03:14.332
for every dollar that it's spending,

00:03:14.332 --> 00:03:17.255
it has to borrow 40 cents of that dollar.

00:03:17.255 --> 00:03:21.079
If you really think about the
total obligations that it has,

00:03:21.079 --> 00:03:24.128
and the total obligations
being $4.5 trillion took on,

00:03:24.128 --> 00:03:27.081
viewed that way it only
has about half of that.

00:03:27.081 --> 00:03:29.594
It only has about half of
that coming in in revenue.

00:03:29.594 --> 00:03:31.596
So every dollar in revenue
the government is taking

00:03:31.596 --> 00:03:34.500
on an equal amount of
obligations that year.

00:03:34.500 --> 00:03:37.450
Some of that is going to express
itself in terms of increased debt,

00:03:37.450 --> 00:03:40.865
and some of that is just going to
show up as increased obligations.

00:03:40.865 --> 00:03:43.188
You can see both of those
things are increasing

00:03:43.188 --> 00:03:45.092
year after year after year,

00:03:45.092 --> 00:03:46.757
and depending on who you talk to

00:03:46.757 --> 00:03:48.122
which side of the political spectrum,

00:03:48.122 --> 00:03:49.859
some people will blame it on Bush.

00:03:49.859 --> 00:03:53.998
They'll say, "Look at this." The
spending increased under Obama,

00:03:53.998 --> 00:03:55.254
which someone on the right would say.

00:03:55.254 --> 00:03:56.325
But then someone on the left would say,

00:03:56.325 --> 00:03:57.519
"Yes, but the spending increased

00:03:57.519 --> 00:03:59.183
"because we have to do
all of these bailouts.

00:03:59.183 --> 00:04:04.112
"The economy started to
tank at the end of 2008.

00:04:04.112 --> 00:04:06.164
"We have to do all of
these emergency things."

00:04:06.164 --> 00:04:09.328
As soon as the economy tanks,
you automatically, the deficit

00:04:09.328 --> 00:04:12.522
position gets worse because
you bring in less revenue.

00:04:12.522 --> 00:04:13.922
Not only do you bring in less revenue

00:04:13.922 --> 00:04:16.496
because corporate profits are
down, fewer people are employed,

00:04:16.496 --> 00:04:19.947
people start earning less, but
you also have higher expenses

00:04:19.947 --> 00:04:23.490
because all of these automatic
obligations kick into effect;

00:04:23.490 --> 00:04:26.996
unemployment benefits, Social
Security benefits, Medicare benefits.

00:04:26.996 --> 00:04:29.185
Those increase so deficits
naturally get worse,

00:04:29.185 --> 00:04:31.116
but the whole point here
is to say regardless

00:04:31.116 --> 00:04:33.250
of what party you're on,
things are getting worse,

00:04:33.250 --> 00:04:35.248
and they don't seem to be getting better.

00:04:35.248 --> 00:04:37.778
Generally, you'll always
see this net operating cost,

00:04:37.778 --> 00:04:40.287
sometimes the net operating
costs will look lower

00:04:40.287 --> 00:04:42.532
than the actual deficit
like it did in 2008.

00:04:42.532 --> 00:04:44.782
That's because there would
be some type of actuarial

00:04:44.782 --> 00:04:48.290
or accounting reestimate
of the future obligations

00:04:48.290 --> 00:04:50.053
maybe the pension obligations or whatever.

00:04:50.053 --> 00:04:51.542
But in most years, we're taking on more

00:04:51.542 --> 00:04:53.999
obligations than just our cash outlays.

00:04:53.999 --> 00:04:57.117
That's why you see the
operating costs so much higher

00:04:57.117 --> 00:05:00.970
than just the pure
deficit right over here.

00:05:00.970 --> 00:05:02.361
This chart right over here actually goes

00:05:02.361 --> 00:05:06.112
into what the difference
is, the actual difference.

00:05:06.112 --> 00:05:08.451
You see that it's mainly
things like liabilities

00:05:08.451 --> 00:05:12.138
for veteran's compensation, military
and civilian employee benefits,

00:05:12.138 --> 00:05:13.941
government sponsored enterprises.

00:05:13.941 --> 00:05:16.057
There is some downward
revision of the TARP.

00:05:16.057 --> 00:05:18.304
I don't think you can see that.

00:05:18.304 --> 00:05:20.162
All of a sudden you realize
that the TARP is going

00:05:20.162 --> 00:05:22.645
to cost us more in the future than
you thought it was going to be.

00:05:22.645 --> 00:05:25.388
Even though you don't spend
that $86 billion this year,

00:05:25.388 --> 00:05:28.655
you realize that you have an
$86 billion higher obligation.

00:05:28.655 --> 00:05:32.321
If you add all of these, or I
guess you subtract all of these

00:05:32.321 --> 00:05:34.123
from the budget deficit, then you're going

00:05:34.123 --> 00:05:37.608
to get the net operating costs.

00:05:37.608 --> 00:05:40.248
You might already find that depressing,

00:05:40.248 --> 00:05:41.983
but the point of this video is actually,

00:05:41.983 --> 00:05:46.314
that's just the beginning, because
if you look at where we're going,

00:05:46.314 --> 00:05:48.983
the trajectory, it gets
even more depressing

00:05:48.983 --> 00:05:51.694
because not only do we have
this huge budget deficit,

00:05:51.694 --> 00:05:54.858
or this huge operating cost,

00:05:54.858 --> 00:05:58.883
this loss I guess you could
say on an annual basis,

00:05:58.883 --> 00:06:00.775
but it's going to get worse
and it's going to get worse

00:06:00.775 --> 00:06:03.246
not just from the overspending,
not just from the overspending

00:06:03.246 --> 00:06:05.449
on the government programs,
and defense and all of that,

00:06:05.449 --> 00:06:09.393
but because our debt is increasing
so much that the interest,

00:06:09.393 --> 00:06:11.990
the amount we spend on interest
is only going to increase.

00:06:11.990 --> 00:06:13.197
That just makes matters worse.

00:06:13.197 --> 00:06:15.660
The more you spend on interest,
the larger your deficits.

00:06:15.660 --> 00:06:18.341
The larger your deficits,
the more you have to borrow,

00:06:18.341 --> 00:06:20.160
the more you have to spend on interest.

00:06:20.160 --> 00:06:23.493
This is a long time line right
here. It goes out to 2080,

00:06:23.493 --> 00:06:26.341
but it's pretty clear that something,
something is going to give.

00:06:26.341 --> 00:06:30.458
As a percentage of GDP, the government,

00:06:30.458 --> 00:06:32.215
the size of the government
has historically been

00:06:32.215 --> 00:06:34.662
around this depending on
different periods in history,

00:06:34.662 --> 00:06:37.412
but in the recent past
it's been in the 20% range.

00:06:37.412 --> 00:06:39.579
If you just let things go
the way they're going to go,

00:06:39.579 --> 00:06:41.408
and a lot of these are
kind of mandatory spending,

00:06:41.408 --> 00:06:43.003
things we've already
obligated ourselves to,

00:06:43.003 --> 00:06:44.963
or what we think we've
obligated ourselves to,

00:06:44.963 --> 00:06:47.402
it looks like the size of
the government is really

00:06:47.402 --> 00:06:48.737
just going to take over the economy.

00:06:48.737 --> 00:06:51.067
It's going to grow over
the next 20-30 years

00:06:51.067 --> 00:06:55.650
to 30%, 35%, 40% of the entire economy.

00:06:55.650 --> 00:07:00.071
If that by itself is not scary
or depressing enough for you,

00:07:00.071 --> 00:07:04.304
then we just have to look at
this chart right over here.

00:07:04.304 --> 00:07:06.343
We've already gone over
some of this chart.

00:07:06.343 --> 00:07:09.944
This is the gross costs. This is
the total amount we're spending,

00:07:09.944 --> 00:07:13.405
outlays, cash outlays and other
obligations we're taking on,

00:07:13.405 --> 00:07:15.857
and accounting for it in
some way in the present.

00:07:15.857 --> 00:07:17.940
Then you have the taxes
that you're bringing in,

00:07:17.940 --> 00:07:19.455
and you see that this
is your net operating

00:07:19.455 --> 00:07:21.205
cost that we calculated already.

00:07:21.205 --> 00:07:23.668
Then it shows your assets,
the assets of the government,

00:07:23.668 --> 00:07:25.733
mainly buildings and land
and things like that.

00:07:25.733 --> 00:07:28.079
The government has a lot
of nice land and buildings.

00:07:28.079 --> 00:07:31.202
Then you also see property, plant
and equipment, and all of that;

00:07:31.202 --> 00:07:33.137
aircraft carriers,
whatever you want to throw

00:07:33.137 --> 00:07:35.809
into the mix right over here.

00:07:35.809 --> 00:07:39.061
Then you see the debt and there's
been a lot of talk of the debt,

00:07:39.061 --> 00:07:40.478
but you might be saying,
"Wait. Even in 2010,

00:07:40.478 --> 00:07:44.274
"right now as we hit the debt
ceiling we have $14.3 trillion,

00:07:44.274 --> 00:07:47.871
"but didn't we have like $13.
something trillion in debt in 2010?

00:07:47.871 --> 00:07:49.673
"Why does this only say $9 trillion?"

00:07:49.673 --> 00:07:52.668
That's because we had
another $4 trillion in debt

00:07:52.668 --> 00:07:54.864
that is not held by the public.

00:07:54.864 --> 00:07:56.640
This is just debt held by the public.

00:07:56.640 --> 00:07:58.684
The public includes things
like foreign governments,

00:07:58.684 --> 00:08:01.133
but there's another $4
trillion that is held

00:08:01.133 --> 00:08:04.218
by the government itself so
that is not accounted for.

00:08:04.218 --> 00:08:06.782
That $4 trillion is mainly excess funds

00:08:06.782 --> 00:08:09.740
from the Social Security Trust that
are all invested in treasuries,

00:08:09.740 --> 00:08:11.539
but the government, at the
end of the day, is responsible

00:08:11.539 --> 00:08:13.547
for the Social Security Trust.

00:08:13.547 --> 00:08:16.001
So it is not accounted
for right over here.

00:08:16.001 --> 00:08:17.597
You have $9 trillion there.

00:08:17.597 --> 00:08:20.144
You have another $6 trillion
that is seldom talked about

00:08:20.144 --> 00:08:23.797
which is benefits for federal
employees and veterans.

00:08:23.797 --> 00:08:26.399
That's right over here,
so huge obligation.

00:08:26.399 --> 00:08:29.803
A total of $16 trillion in liabilities.

00:08:29.803 --> 00:08:31.736
If that by itself
doesn't scare you enough,

00:08:31.736 --> 00:08:33.131
or doesn't depress you enough,

00:08:33.131 --> 00:08:35.964
we just have to go down a
few lines on the statement,

00:08:35.964 --> 00:08:38.065
and you'll see something that does.

00:08:38.065 --> 00:08:41.069
This right here is the
expected, or the present value

00:08:41.069 --> 00:08:45.508
of the obligations for social insurance.

00:08:45.508 --> 00:08:47.628
The way that they talk
about social insurance,

00:08:47.628 --> 00:08:50.880
it's both social security
and things like Medicare.

00:08:50.880 --> 00:08:53.825
These things that we've
promised we would pay to people

00:08:53.825 --> 00:08:56.395
in the future at least
that we've told people

00:08:56.395 --> 00:08:58.269
that we will pay them in the future.

00:08:58.269 --> 00:08:59.939
The present value, and
the easiest way to think

00:08:59.939 --> 00:09:01.739
about present value, and
I've done videos that go

00:09:01.739 --> 00:09:03.128
into a little bit more depth on that is

00:09:03.128 --> 00:09:04.859
how much money given some assumptions,

00:09:04.859 --> 00:09:06.533
if you assume that if I put money aside,

00:09:06.533 --> 00:09:08.326
and that money grows at some rate,

00:09:08.326 --> 00:09:10.643
how much money would I have to put aside

00:09:10.643 --> 00:09:12.876
in order to fund those obligations?

00:09:12.876 --> 00:09:16.408
This value is over the next 75 years,

00:09:16.408 --> 00:09:17.671
and I want to make it clear.

00:09:17.671 --> 00:09:19.148
You might say, "Oh, 75 years, of course,

00:09:19.148 --> 00:09:20.202
"that's going to be a huge number."

00:09:20.202 --> 00:09:23.087
But remember, we're assuming
that we can grow money.

00:09:23.087 --> 00:09:25.539
We're assuming that
obligations that are 75 years

00:09:25.539 --> 00:09:29.041
from now that if i have to pay
someone $10 75 years from now,

00:09:29.041 --> 00:09:30.870
I don't have to put $10 aside.

00:09:30.870 --> 00:09:33.476
I might only have to put
50 cents or a dollar aside

00:09:33.476 --> 00:09:36.835
and assume that that 50 cents or
dollar will grow by some percentage

00:09:36.835 --> 00:09:41.750
so that by the time 75 years go
by, I'll actually have that $10.

00:09:41.750 --> 00:09:46.668
This is actually a discounted value.
This is assuming that the money

00:09:46.668 --> 00:09:48.086
that you could set aside today

00:09:48.086 --> 00:09:50.114
that the obligation
today, that it would grow

00:09:50.114 --> 00:09:53.082
to actually fulfill the actual
amount that you have to pay.

00:09:53.082 --> 00:09:56.994
This should scare you.
These are huge numbers.

00:09:56.994 --> 00:10:00.574
This close group are what they
call the current participants.

00:10:00.574 --> 00:10:01.889
We could read the footnotes.

00:10:01.889 --> 00:10:03.587
Includes current participants receiving

00:10:03.587 --> 00:10:05.916
and/or are eligible to receive
benefits for the Social Security

00:10:05.916 --> 00:10:08.650
and Medicare programs ages 15 and over

00:10:08.650 --> 00:10:11.999
at the start of the 75
year projection period.

00:10:11.999 --> 00:10:15.050
That's $43 trillion. Then open group.

00:10:15.050 --> 00:10:16.648
They have current and future participants.

00:10:16.648 --> 00:10:18.469
This is slightly lower
because it's including

00:10:18.469 --> 00:10:20.658
people who are going to be
paying into the program,

00:10:20.658 --> 00:10:23.115
and not necessarily
taking out of the program.

00:10:23.115 --> 00:10:26.045
but it's still a huge, huge liability.

00:10:26.045 --> 00:10:28.971
It's twice as big as
the official liabilities

00:10:28.971 --> 23:59:59.999
that the government takes on.


Deficit and debt ceiling

WEBVTT
Kind: captions
Language: en

00:00:00.500 --> 00:00:02.304
Before we talk about
the debt ceiling,

00:00:02.304 --> 00:00:03.970
it's important to
realize the difference

00:00:03.970 --> 00:00:09.130
between the deficit
and the debt.

00:00:09.130 --> 00:00:10.940
Because these words
are thrown around

00:00:10.940 --> 00:00:13.370
and it's clear that they're
related, but sometimes

00:00:13.370 --> 00:00:15.550
people might confuse
one for the other.

00:00:15.550 --> 00:00:18.240
The deficit is how
much you overspend

00:00:18.240 --> 00:00:20.510
in a given year,
while the debt is

00:00:20.510 --> 00:00:23.260
the total amount, the
cumulative amount, of debt

00:00:23.260 --> 00:00:25.980
you you've gotten
over many, many years.

00:00:25.980 --> 00:00:28.660
So let's take a look, I guess
a very simplified example,

00:00:28.660 --> 00:00:30.600
let's say you have
some type of a country.

00:00:30.600 --> 00:00:37.630
And that country spends,
in a given year, $10.

00:00:37.630 --> 00:00:41.510
But it's only bringing
in $6 in tax revenue.

00:00:41.510 --> 00:00:43.290
So it's bringing in taxes.

00:00:43.290 --> 00:00:45.730
It's only bringing in $6.

00:00:45.730 --> 00:00:48.930
So this country in this
year, where it spends $10,

00:00:48.930 --> 00:00:57.030
even though it only has $6 to
spend, it has a $4 deficit.

00:00:57.030 --> 00:00:58.610
Def is the short for deficit.

00:00:58.610 --> 00:01:00.470
And well, let me
just write it out.

00:01:00.470 --> 00:01:02.220
You might think it's
defense or something.

00:01:02.220 --> 00:01:04.769
It has a $4 deficit.

00:01:04.769 --> 00:01:06.270
And you might say,
well, how does it

00:01:06.270 --> 00:01:07.728
spend more money
that it brings in?

00:01:07.728 --> 00:01:10.100
How can it actually
continue to spend this much?

00:01:10.100 --> 00:01:12.160
Where will it get the $4 from?

00:01:12.160 --> 00:01:15.970
And the answer is, it
will borrow that $4.

00:01:15.970 --> 00:01:18.410
Our little country
will borrow it.

00:01:18.410 --> 00:01:20.640
And so the debt, maybe
going into this year,

00:01:20.640 --> 00:01:22.400
the country already
had some debt.

00:01:22.400 --> 00:01:25.750
Maybe it already
had $100 of debt.

00:01:25.750 --> 00:01:27.390
And so in this
situation, it would

00:01:27.390 --> 00:01:30.230
have to borrow
another $4 of debt.

00:01:30.230 --> 00:01:34.470
And so exiting this year,
it would have $104 of debt.

00:01:37.680 --> 00:01:41.880
If the country runs the same
$4 deficit the year after this,

00:01:41.880 --> 00:01:43.970
then the debt will
increase to $108.

00:01:43.970 --> 00:01:46.360
If it runs another $4
deficit, than the debt

00:01:46.360 --> 00:01:49.649
will increase to $112.

00:01:49.649 --> 00:01:51.190
Now that we have
that out of the way,

00:01:51.190 --> 00:01:53.930
let's think about what
the debt ceiling is.

00:01:53.930 --> 00:01:56.810
So you could imagine, the
United States actually does.

00:01:56.810 --> 00:01:58.710
It's continuing
to run a deficit.

00:01:58.710 --> 00:02:00.770
It's continuing to spend
more than it brings in.

00:02:00.770 --> 00:02:02.270
And actually, for
the United States,

00:02:02.270 --> 00:02:04.420
these ratios are appropriate.

00:02:04.420 --> 00:02:07.610
For every dollar that the
United States spends right now,

00:02:07.610 --> 00:02:11.850
40% is borrowed.

00:02:11.850 --> 00:02:13.370
Or another way to
think about it,

00:02:13.370 --> 00:02:15.820
it only has 60% of
every dollar that it

00:02:15.820 --> 00:02:16.960
needs to spend right now.

00:02:16.960 --> 00:02:21.350
So it has to go out into the
debt markets and borrow 40%

00:02:21.350 --> 00:02:23.900
to keep spending at
its current rate.

00:02:23.900 --> 00:02:25.400
And so if it's
continuing to borrow,

00:02:25.400 --> 00:02:28.225
you could imagine that the
debt keeps on increasing.

00:02:30.830 --> 00:02:32.360
So let me draw a
little graph here.

00:02:32.360 --> 00:02:34.490
So that axis is time.

00:02:34.490 --> 00:02:40.180
This axis right over here is the
total cumulative amount of debt

00:02:40.180 --> 00:02:41.280
that we have.

00:02:41.280 --> 00:02:44.077
We continue to have to
borrow 40% of every dollar

00:02:44.077 --> 00:02:44.910
that we're spending.

00:02:44.910 --> 00:02:47.230
And so our debt is
continuing to increase.

00:02:50.340 --> 00:02:54.700
And Congress has the power,
or Congress has the authority,

00:02:54.700 --> 00:02:57.950
to essentially limit
how much debt we have.

00:02:57.950 --> 00:03:07.320
So right now we have a current
debt limit of $14.3 trillion.

00:03:07.320 --> 00:03:10.489
And even though Congress
has this authority,

00:03:10.489 --> 00:03:12.030
the way that it's
worked in the past,

00:03:12.030 --> 00:03:13.570
is this kind of
just a rubber stamp.

00:03:13.570 --> 00:03:16.660
Congress has just always allowed
the debt ceiling to go up

00:03:16.660 --> 00:03:18.645
and up and up to fund
our borrowing costs.

00:03:18.645 --> 00:03:20.520
And if you think about
it, that kind of makes

00:03:20.520 --> 00:03:22.560
sense because right
now Congress is

00:03:22.560 --> 00:03:25.500
the one that decides
where to spend the money.

00:03:25.500 --> 00:03:26.981
What are the obligations.

00:03:26.981 --> 00:03:28.480
And so the debt
ceiling is like, OK,

00:03:28.480 --> 00:03:32.500
we've already agreed what you
have to spend your money on.

00:03:32.500 --> 00:03:35.870
Congress is the one that figures
out what we spend our money on,

00:03:35.870 --> 00:03:37.210
and what our taxes are.

00:03:37.210 --> 00:03:38.710
And so they say,
look, we've already

00:03:38.710 --> 00:03:40.900
determined how much
you have to borrow.

00:03:40.900 --> 00:03:43.650
It would seem kind of ridiculous
for us after we've determined

00:03:43.650 --> 00:03:45.920
how much you borrow to say
that you cannot borrow it.

00:03:45.920 --> 00:03:48.910
You cannot you cannot actually
do what we've told you to do.

00:03:48.910 --> 00:03:51.309
And so historically,
Congress has just kind of

00:03:51.309 --> 00:03:52.100
gone with the flow.

00:03:52.100 --> 00:03:53.516
They said, OK,
yeah we've told you

00:03:53.516 --> 00:03:57.200
we need to borrow more
money to execute--

00:03:57.200 --> 00:03:59.590
the executive branch has to
run the government-- for you

00:03:59.590 --> 00:04:01.820
to actually run the
government based on the budget

00:04:01.820 --> 00:04:02.320
we told you.

00:04:02.320 --> 00:04:03.550
So they just keep upping it.

00:04:03.550 --> 00:04:05.425
And the last time the
debt ceiling was raised

00:04:05.425 --> 00:04:08.740
was actually very recently,
February 12, 2010.

00:04:08.740 --> 00:04:12.650
It was raised from
$12.3 trillion,

00:04:12.650 --> 00:04:17.230
point actually $12.4 trillion
to the $14.3 trillion.

00:04:17.230 --> 00:04:18.769
And this happens
pretty regularly.

00:04:18.769 --> 00:04:23.790
It's happened 10 times since
2001, 74 times since 1962.

00:04:23.790 --> 00:04:26.080
So it's just a regular
operating thing.

00:04:26.080 --> 00:04:29.930
And right now the Obama
administration says, look,

00:04:29.930 --> 00:04:32.340
we've actually come up
against our debt ceiling.

00:04:32.340 --> 00:04:35.370
We want to raise it, and ideally
for the Obama administration,

00:04:35.370 --> 00:04:37.880
they want to raise it
by about $2.4 trillion.

00:04:37.880 --> 00:04:41.220
So they want to raise
it to $16.7 trillion,

00:04:41.220 --> 00:04:43.810
which will kind of put it off
the table for a little bit.

00:04:43.810 --> 00:04:45.430
Put it past the
elections so that we

00:04:45.430 --> 00:04:47.740
don't have to
debate this anymore.

00:04:47.740 --> 00:04:50.010
The Republicans on
the other the side,

00:04:50.010 --> 00:04:52.260
want to essentially
use this, and this

00:04:52.260 --> 00:04:54.940
is a little bit unusual,
to use this as leverage

00:04:54.940 --> 00:04:58.470
to essentially
reduce the deficit.

00:04:58.470 --> 00:05:00.160
And not only to
reduce the deficit,

00:05:00.160 --> 00:05:03.810
but it's in particular to reduce
the deficit through spending

00:05:03.810 --> 00:05:04.500
cuts.

00:05:04.500 --> 00:05:06.890
And so that's why it's become
this big game of chicken

00:05:06.890 --> 00:05:09.090
and why we're going
up against this limit.

00:05:09.090 --> 00:05:11.480
Now, one thing that you
may or may not realize

00:05:11.480 --> 00:05:13.620
is that we've
actually already hit

00:05:13.620 --> 00:05:15.330
the debt limit, the
current debt limit.

00:05:15.330 --> 00:05:20.680
And we hit that debt
limit on May 16, 2011.

00:05:20.680 --> 00:05:23.990
I'm making this video at
the end of July in 2011.

00:05:23.990 --> 00:05:26.330
And the only reason why
the country's continuing

00:05:26.330 --> 00:05:30.100
to operate, and the only
reason why the country has

00:05:30.100 --> 00:05:32.860
been able to continue to pay
interest on its obligations,

00:05:32.860 --> 00:05:35.780
and pay issue social
security checks,

00:05:35.780 --> 00:05:39.730
and support Medicare, and buy
fuel for aircraft carriers,

00:05:39.730 --> 00:05:41.650
and all the rest,
is that Geithner,

00:05:41.650 --> 00:05:43.850
who's the Treasury
Secretary, has

00:05:43.850 --> 00:05:47.470
been able to find cash in other
places, cash normally set aside

00:05:47.470 --> 00:05:49.610
for employee pensions
and all the rest.

00:05:49.610 --> 00:05:52.580
And has essentially done a
little bit of a bookkeeping,

00:05:52.580 --> 00:05:55.250
taking money from one
place to feed another.

00:05:55.250 --> 00:05:57.750
But what he said, what
he's publicly said,

00:05:57.750 --> 00:06:04.010
is that he won't be able to do
that anymore as of August 2,

00:06:04.010 --> 00:06:04.690
2011.

00:06:04.690 --> 00:06:07.520
So this right here is
the date that everyone

00:06:07.520 --> 00:06:10.820
is paying attention
to, August 2, 2011.

00:06:10.820 --> 00:06:13.050
According to Geithner,
at that point,

00:06:13.050 --> 00:06:16.260
he won't be able to find random
pockets of cash here and there

00:06:16.260 --> 00:06:17.650
and shuffle it around.

00:06:17.650 --> 00:06:19.570
And what he calls
extraordinary measures.

00:06:19.570 --> 00:06:21.200
And at that point,
the United States

00:06:21.200 --> 00:06:24.497
will not be able to fulfill
all of its obligations.

00:06:24.497 --> 00:06:27.080
And so if you think about all
of the obligations of the United

00:06:27.080 --> 00:06:31.070
States, this is a huge
oversimplification here.

00:06:31.070 --> 00:06:34.590
So this bar represent
all of the obligations.

00:06:34.590 --> 00:06:39.840
Some of those obligations
are things like interest

00:06:39.840 --> 00:06:41.250
on the debt that
it already owes.

00:06:41.250 --> 00:06:45.270
It already owes a huge amount
of debt, $14.3 trillion.

00:06:45.270 --> 00:06:54.130
And things like social security,
Medicare, defense, and then

00:06:54.130 --> 00:06:59.710
all of the other stuff that
the country has to support,

00:06:59.710 --> 00:07:01.530
all of their other obligations.

00:07:01.530 --> 00:07:06.810
So if as of August 2, 2011,
we cannot issue any more debt,

00:07:06.810 --> 00:07:09.580
and Geithner doesn't have any
extra cash laying around with

00:07:09.580 --> 00:07:13.100
these extraordinary
measures, then,

00:07:13.100 --> 00:07:15.540
if those are the only
options on the table,

00:07:15.540 --> 00:07:18.820
The only option is to somehow
reduce some of these things

00:07:18.820 --> 00:07:19.780
by 40%.

00:07:19.780 --> 00:07:22.820
Because 40% of
every dollar we used

00:07:22.820 --> 00:07:26.420
to spend on all of these
obligations, 40% are borrowed.

00:07:26.420 --> 00:07:28.260
And so something over
here is going to give.

00:07:28.260 --> 00:07:32.260
We're not going to fulfill
our obligations to one or more

00:07:32.260 --> 00:07:34.030
of these things,
all of these things

00:07:34.030 --> 00:07:36.130
that we are legally
obligated to fulfill.

00:07:36.130 --> 00:07:38.210
That Congress has said,
these are the things

00:07:38.210 --> 00:07:41.270
that the United States should
be spending its money on.

00:07:41.270 --> 00:07:43.660
And so at that point,
it is perceived

00:07:43.660 --> 00:07:45.570
that we would have to default.

00:07:45.570 --> 00:07:48.210
And a default actually would
be on any of its obligations.

00:07:48.210 --> 00:07:50.950
But in particular, we
could be, especially

00:07:50.950 --> 00:07:52.750
if we have to cut
everything by 40%.

00:07:52.750 --> 00:07:54.910
And we don't want
to see retirees not

00:07:54.910 --> 00:07:57.310
be able to get evicted from
their houses, or aircraft

00:07:57.310 --> 00:07:59.550
carriers not have
fuel, or whatever else.

00:07:59.550 --> 00:08:01.590
We might defer, or
try to restructure,

00:08:01.590 --> 00:08:03.660
or do something
weird with our debt.

00:08:03.660 --> 00:08:06.500
In which case, we
would be defaulting.

00:08:06.500 --> 00:08:08.990
And I want to be clear,
a default, it's usually

00:08:08.990 --> 00:08:12.260
referred to not fully paying the
interest on debt that you owe.

00:08:12.260 --> 00:08:14.815
But a default would be
any of its obligations.

00:08:14.815 --> 00:08:16.960
The United States
has this AAA rating.

00:08:16.960 --> 00:08:18.670
If the United States says it's
going to give you a Social

00:08:18.670 --> 00:08:20.000
Security check, you trust that.

00:08:20.000 --> 00:08:21.859
If the United States
says that it's

00:08:21.859 --> 00:08:24.150
going to pay for that Medicare
payment, you trust that.

00:08:24.150 --> 00:08:25.900
If it says it's going to
give you an interest payment,

00:08:25.900 --> 00:08:26.671
you trust that.

00:08:26.671 --> 00:08:28.420
All of a sudden, if
United States does not

00:08:28.420 --> 00:08:30.170
fulfill any of those
obligations, then

00:08:30.170 --> 00:08:32.830
all of the obligations
becomes suspect.

00:08:32.830 --> 00:08:37.900
And the reason why this is a
big deal, as you can imagine,

00:08:37.900 --> 00:08:42.380
if you borrow money, you've
always been good at paying back

00:08:42.380 --> 00:08:44.980
that money, you're
going to pay lower

00:08:44.980 --> 00:08:47.562
interest than other
people would have to pay.

00:08:47.562 --> 00:08:49.270
But all of a sudden,
for whatever reason,

00:08:49.270 --> 00:08:50.609
one day you default.

00:08:50.609 --> 00:08:52.150
You either delay
your payment, or you

00:08:52.150 --> 00:08:54.200
say you don't have the
cash to pay your payments,

00:08:54.200 --> 00:08:58.520
then people's like, wow
you're a much riskier person

00:08:58.520 --> 00:08:59.960
to lend money to.

00:08:59.960 --> 00:09:02.350
So now I'm going to increase
the interest rates on you.

00:09:02.350 --> 00:09:04.500
And so the perception
is if the United States

00:09:04.500 --> 00:09:07.960
were to default on its debt,
or any of its obligations,

00:09:07.960 --> 00:09:11.490
that interest rates would go up.

00:09:11.490 --> 00:09:14.610
And the reason why this
would really not great

00:09:14.610 --> 00:09:17.020
is because it would make
the debt and the deficit

00:09:17.020 --> 00:09:18.180
even worse.

00:09:18.180 --> 00:09:20.400
Then this chunk is
going to have to grow.

00:09:20.400 --> 00:09:22.240
Our obligations are on debt.

00:09:22.240 --> 00:09:24.122
As new debt gets
issued, we're gonna

00:09:24.122 --> 00:09:25.580
have to pay more
and more interest.

00:09:25.580 --> 00:09:27.288
So it's going to just
make matters worse.

00:09:27.288 --> 00:09:28.880
It's going to make
the deficit worse.

00:09:28.880 --> 00:09:30.691
And on top of
that, it's not just

00:09:30.691 --> 00:09:33.190
that the government's debt, the
interest on the government's

00:09:33.190 --> 00:09:37.290
debt will go up, but interest
on all debt in the United States

00:09:37.290 --> 00:09:38.560
will probably go up.

00:09:38.560 --> 00:09:41.080
Because government debt is
perceived to be the safest,

00:09:41.080 --> 00:09:42.237
it's the benchmark.

00:09:42.237 --> 00:09:44.070
A lot of other debt
contractors are actually

00:09:44.070 --> 00:09:45.650
tied to government debt.

00:09:45.650 --> 00:09:48.560
So you'll have interest rates
throughout the economy go up,

00:09:48.560 --> 00:09:50.350
which is exactly
what you do not want

00:09:50.350 --> 00:09:52.620
to happen when you are
either in a recession,

00:09:52.620 --> 00:09:56.066
or when you are recovering
from a recession.


Electoral college

WEBVTT
Kind: captions
Language: en

00:00:00.590 --> 00:00:02.660
In the US, we
don't directly vote

00:00:02.660 --> 00:00:04.820
for our president
or vice president.

00:00:04.820 --> 00:00:07.460
Instead, we use something
called the Electoral College.

00:00:11.060 --> 00:00:14.100
So when you show up to vote on
Election Day-- and an election

00:00:14.100 --> 00:00:16.850
day will happen in November
of an election year.

00:00:16.850 --> 00:00:19.420
And it could happen as
early as November 2,

00:00:19.420 --> 00:00:22.000
and it could happen
as late as November 8.

00:00:22.000 --> 00:00:25.710
And it's going to be the
Tuesday after the first Monday

00:00:25.710 --> 00:00:26.350
in the month.

00:00:26.350 --> 00:00:30.750
So it'll be November 2 if the
first Monday is November 1,

00:00:30.750 --> 00:00:34.930
and it'll be November 8 if the
first Monday is November 7.

00:00:34.930 --> 00:00:36.959
And so you go on
election day, and you

00:00:36.959 --> 00:00:39.500
will see a ballot that will have
the presidential candidates.

00:00:39.500 --> 00:00:40.475
It'll have their parties there.

00:00:40.475 --> 00:00:41.940
It will have the vice
presidential candidates,

00:00:41.940 --> 00:00:43.620
and you'll vote for one of them.

00:00:43.620 --> 00:00:50.040
But in actuality, when you
are voting for Candidate A--

00:00:50.040 --> 00:00:53.070
and let's say Candidate A is a
Democrat-- you're not actually

00:00:53.070 --> 00:00:55.540
voting for Candidate
A. You're actually

00:00:55.540 --> 00:00:59.260
voting for a slate
of electors who

00:00:59.260 --> 00:01:01.605
promise to vote
for that candidate.

00:01:06.680 --> 00:01:09.110
And it isn't in most
states proportional

00:01:09.110 --> 00:01:10.740
based on what
proportion of people

00:01:10.740 --> 00:01:12.420
vote for one
candidate or another.

00:01:12.420 --> 00:01:15.280
In most of the states, except
for Maine and Nebraska,

00:01:15.280 --> 00:01:17.400
it is a winner take all system.

00:01:17.400 --> 00:01:19.130
So what do I mean by that?

00:01:19.130 --> 00:01:22.580
So right here, you have the
breakdown of the United States,

00:01:22.580 --> 00:01:25.960
by state, of how many electors
words each state gets.

00:01:25.960 --> 00:01:27.900
And the number of
electors is essentially

00:01:27.900 --> 00:01:30.260
the number of congressmen
that that state has.

00:01:30.260 --> 00:01:32.810
For example, California
has two senators.

00:01:32.810 --> 00:01:34.390
Every state has two senators.

00:01:34.390 --> 00:01:38.186
California has two senators
and 53 congressmen.

00:01:38.186 --> 00:01:40.560
And those of you who aren't
familiar with it, every state

00:01:40.560 --> 00:01:44.610
gets two senators, and the
House of Representatives

00:01:44.610 --> 00:01:46.000
is dictated by population.

00:01:46.000 --> 00:01:50.600
California is a huge state, two
senators, 53 representatives.

00:01:50.600 --> 00:01:56.310
You have Texas, two senators
and it has 32 representatives.

00:01:56.310 --> 00:01:58.550
You go to Louisiana,
you have two senators

00:01:58.550 --> 00:02:01.410
and you have seven
representatives.

00:02:01.410 --> 00:02:03.540
So the electors
per state is based

00:02:03.540 --> 00:02:05.480
on the total number
of congressmen,

00:02:05.480 --> 00:02:09.400
so the number of senators plus
the number of representatives.

00:02:09.400 --> 00:02:13.350
That's what gives us 55 in
California, nine in Louisiana,

00:02:13.350 --> 00:02:15.542
34 in Texas.

00:02:15.542 --> 00:02:17.000
But what's interesting
here is it's

00:02:17.000 --> 00:02:19.160
a winner take all
system in every state

00:02:19.160 --> 00:02:23.030
except for Nebraska and Maine.

00:02:23.030 --> 00:02:28.480
In every other state, if I
get 51% of the vote in Texas,

00:02:28.480 --> 00:02:33.080
I get all 34 electoral votes
in the Electoral College.

00:02:33.080 --> 00:02:38.000
If I get 51% or even
if I get 50.1%, just

00:02:38.000 --> 00:02:40.440
a slight majority of
the votes in California,

00:02:40.440 --> 00:02:43.740
I will get all of the
votes for California

00:02:43.740 --> 00:02:45.590
in the Electoral College.

00:02:45.590 --> 00:02:48.460
And in general, or in
actuality, the president

00:02:48.460 --> 00:02:53.095
is whoever gets the majority
of the electoral votes

00:02:53.095 --> 00:02:53.970
in the United States.

00:02:53.970 --> 00:02:56.060
And right now,
that threshold is,

00:02:56.060 --> 00:02:57.990
or that magic number--
you could think of it

00:02:57.990 --> 00:03:03.550
that way-- is 270
Electoral College votes.

00:03:06.510 --> 00:03:11.540
If no candidate is able to hit
this threshold of 270 Electoral

00:03:11.540 --> 00:03:14.582
College votes, then it
will go to the US Congress.

00:03:14.582 --> 00:03:16.290
And in the US Congress,
it's interesting,

00:03:16.290 --> 00:03:18.190
because it isn't one
congressman, one vote.

00:03:18.190 --> 00:03:21.307
Or actually, I should say the
US House of Representatives.

00:03:21.307 --> 00:03:23.140
It'll go to the US House
of Representatives.

00:03:23.140 --> 00:03:25.530
And it won't be one
representative, one vote.

00:03:25.530 --> 00:03:27.290
What will happen is
the representatives

00:03:27.290 --> 00:03:30.090
in each state will
vote together,

00:03:30.090 --> 00:03:32.930
and each state will
get only one vote.

00:03:32.930 --> 00:03:35.710
So in a tiebreaker,
the big states really,

00:03:35.710 --> 00:03:38.130
really lose out,
because in a tiebreaker,

00:03:38.130 --> 00:03:40.640
Texas will get only one vote.

00:03:40.640 --> 00:03:42.510
California will get one vote.

00:03:42.510 --> 00:03:45.000
And Alaska will get one
vote, and Rhode Island

00:03:45.000 --> 00:03:45.900
will get one vote.

00:03:45.900 --> 00:03:50.280
So Rhode Island will have just
as much say in a tiebreaker

00:03:50.280 --> 00:03:52.930
as California will over
who will be president.

00:03:52.930 --> 00:03:55.100
Then they'll just keep
voting until someone

00:03:55.100 --> 00:03:59.154
gets a simple majority
of the votes by state.

00:03:59.154 --> 00:04:00.570
Now, there's one
other twist here.

00:04:00.570 --> 00:04:03.150
It's that the District of
Columbia-- Washington, DC right

00:04:03.150 --> 00:04:06.170
over here-- in Congress
gets no representatives.

00:04:06.170 --> 00:04:09.340
They have no senators, and
they have no representatives.

00:04:09.340 --> 00:04:11.760
But they do get
three electoral votes

00:04:11.760 --> 00:04:15.366
when it comes to deciding
who is going to be president.

00:04:15.366 --> 00:04:17.074
Now, you might already
be getting a sense

00:04:17.074 --> 00:04:20.390
here that maybe this winner
take all system might lead

00:04:20.390 --> 00:04:23.330
to some distortions, and the
biggest distortion of all

00:04:23.330 --> 00:04:30.250
is you can imagine a candidate
who wins the popular vote

00:04:30.250 --> 00:04:35.920
and loses the election or
loses in the Electoral College.

00:04:35.920 --> 00:04:40.010
And you might think, well,
gee, how can that happen?

00:04:40.010 --> 00:04:42.360
And the way to think about
it is, imagine someone--

00:04:42.360 --> 00:04:45.290
let's say someone
gets-- with the states

00:04:45.290 --> 00:04:47.630
that they win, they
get huge majorities.

00:04:47.630 --> 00:04:49.610
So let's say there's a
conservative candidate,

00:04:49.610 --> 00:04:51.370
and he or she gets
huge majorities

00:04:51.370 --> 00:04:52.630
in the states they win.

00:04:52.630 --> 00:04:54.570
80% in Texas.

00:04:54.570 --> 00:04:56.630
They get 80% in Mississippi.

00:04:56.630 --> 00:04:59.380
They get 80% in Oklahoma.

00:04:59.380 --> 00:05:02.050
The get huge majorities in
the states that they win.

00:05:02.050 --> 00:05:04.560
And the states that they
lose, they barely lose.

00:05:04.560 --> 00:05:07.300
And they barely lose
those really big states.

00:05:07.300 --> 00:05:13.960
So let's say in Florida, that
candidate gets 49% of the vote.

00:05:13.960 --> 00:05:15.869
So they had a lot
of votes in Florida,

00:05:15.869 --> 00:05:16.910
but not enough to win it.

00:05:16.910 --> 00:05:18.910
The other person,
let's say, gets 51%.

00:05:18.910 --> 00:05:21.220
All 27 go to the
other candidate.

00:05:21.220 --> 00:05:25.700
Let's say the same thing
happens in California.

00:05:25.700 --> 00:05:27.970
That candidate got
49% of the vote.

00:05:27.970 --> 00:05:30.640
The opponent, let's say,
gets 51% of the vote.

00:05:30.640 --> 00:05:32.135
All 55 go to California.

00:05:32.135 --> 00:05:34.470
You get no credit for that 49%.

00:05:34.470 --> 00:05:37.300
You get no credit for
that 49% in Florida.

00:05:37.300 --> 00:05:39.054
So in this situation,
this candidate

00:05:39.054 --> 00:05:40.720
might actually end
up with the majority,

00:05:40.720 --> 00:05:42.610
barely losing the
states they lose,

00:05:42.610 --> 00:05:45.470
and trouncing the other
candidate in the states

00:05:45.470 --> 00:05:48.610
that they win, but despite
that, actually getting fewer

00:05:48.610 --> 00:05:50.299
Electoral College votes.

00:05:50.299 --> 00:05:52.340
Now, there's a few
clarifications I want to make,

00:05:52.340 --> 00:05:55.430
especially ones that have
confused me in the past.

00:05:55.430 --> 00:05:59.980
One of them is because you have
the same number of Electoral

00:05:59.980 --> 00:06:04.100
College votes as you have US
representatives plus senators,

00:06:04.100 --> 00:06:07.960
there's kind of this feeling
that maybe each district

00:06:07.960 --> 00:06:10.350
sends its own elector
to the state capital

00:06:10.350 --> 00:06:11.780
to decide who the president is.

00:06:11.780 --> 00:06:13.410
And it doesn't
quite work that way.

00:06:13.410 --> 00:06:15.910
So this right here is
the panel of electors

00:06:15.910 --> 00:06:18.080
for Louisiana in 2008.

00:06:18.080 --> 00:06:21.720
And you can see right over
here, each of the parties

00:06:21.720 --> 00:06:23.270
have their own
slate of electors.

00:06:23.270 --> 00:06:26.110
And these are either decided
by the party themselves,

00:06:26.110 --> 00:06:29.010
or they're decided by
the candidates' teams.

00:06:29.010 --> 00:06:33.237
And even though you have
someone here for each district

00:06:33.237 --> 00:06:35.070
and then you have these
at-large candidates,

00:06:35.070 --> 00:06:37.190
it's not like-- let's
take a situation.

00:06:37.190 --> 00:06:38.690
This actually
happened in Louisiana,

00:06:38.690 --> 00:06:41.400
where John McCain got a
majority of the state.

00:06:41.400 --> 00:06:45.400
So John McCain and Sarah Palin
got a majority of the state.

00:06:45.400 --> 00:06:48.200
It's not the case
that-- let's say

00:06:48.200 --> 00:06:51.624
in the second district,
which is New Orleans,

00:06:51.624 --> 00:06:53.540
let's say that the second
district, a majority

00:06:53.540 --> 00:06:55.790
of the people actually
voted for Barack Obama.

00:06:55.790 --> 00:06:59.380
It is not the case that
Kenneth Garrett in 2008

00:06:59.380 --> 00:07:02.820
would have been
the chosen elector.

00:07:02.820 --> 00:07:04.740
Even though they divide
things by district

00:07:04.740 --> 00:07:06.406
and they have these
at-large candidates,

00:07:06.406 --> 00:07:08.930
it is actually a
state-wide election.

00:07:08.930 --> 00:07:11.200
So they don't look at who
won each of the districts.

00:07:11.200 --> 00:07:13.660
They just say, look,
John McCain and Sarah

00:07:13.660 --> 00:07:15.640
Palin won the entire state.

00:07:15.640 --> 00:07:20.030
So all of these
electors are the ones

00:07:20.030 --> 00:07:22.710
that are going to go to the
state capital in December

00:07:22.710 --> 00:07:26.700
and decide who they want
to pledge their vote for.

00:07:26.700 --> 00:07:30.572
So even if Obama won just the
Second Congressional District,

00:07:30.572 --> 00:07:33.030
that's not how it's thought
about in the Electoral College.

00:07:33.030 --> 00:07:35.200
It's just a state-wide election.

00:07:35.200 --> 00:07:37.070
McCain got the
majority of the state.

00:07:37.070 --> 00:07:40.360
All of the electors will be
chosen from McCain's slate

00:07:40.360 --> 00:07:43.070
or from the Republican
Party slate.

00:07:43.070 --> 00:07:45.160
And then they're going to
go to the state capital.

00:07:45.160 --> 00:07:47.340
In the case of Louisiana,
it would be Baton Rouge.

00:07:47.340 --> 00:07:50.030
And they will decide who they
want to pledge their votes to.

00:07:50.030 --> 00:07:52.240
And all of the electors
in all of the states

00:07:52.240 --> 00:07:55.210
go to their designated location,
usually the state capital,

00:07:55.210 --> 00:07:56.210
on the same day.

00:07:56.210 --> 00:07:58.594
And usually that is
some day in December.

00:07:58.594 --> 00:08:00.760
And they pick the president,
although by that point,

00:08:00.760 --> 00:08:02.570
everyone knows who
the president is,

00:08:02.570 --> 00:08:05.000
because the actual election
was in early November.

00:08:05.000 --> 00:08:07.100
And people know which
way the votes went

00:08:07.100 --> 00:08:11.420
and which way the actual
Electoral College votes went.

00:08:11.420 --> 00:08:13.750
Now, I did mention that
there are two states that

00:08:13.750 --> 00:08:16.770
don't do this winner take
all, Nebraska and Maine.

00:08:16.770 --> 00:08:19.300
And in Nebraska and
Maine, when you go vote,

00:08:19.300 --> 00:08:21.410
it really is by
congressional district.

00:08:21.410 --> 00:08:23.640
Nebraska has three
congressional districts.

00:08:23.640 --> 00:08:26.174
So in those three congressional
districts, if one of them

00:08:26.174 --> 00:08:28.340
goes to the Democrat and
two goes to the Republican,

00:08:28.340 --> 00:08:30.610
then they'll have one
electoral vote for the Democrat

00:08:30.610 --> 00:08:32.190
and two for the Republican.

00:08:32.190 --> 00:08:33.809
And then they have
two at-large votes

00:08:33.809 --> 00:08:36.200
that are decided the same
way, in kind of the winner

00:08:36.200 --> 00:08:37.059
take all basis.

00:08:37.059 --> 00:08:39.510
If you get 51% of the
vote on a statewide basis,

00:08:39.510 --> 00:08:41.330
you get the two at-large votes.

00:08:41.330 --> 00:08:43.890
Same thing for
Maine, but Maine has

00:08:43.890 --> 00:08:45.330
two congressional districts.

00:08:45.330 --> 00:08:48.270
So two of the congressional
districts could go either way.

00:08:48.270 --> 00:08:51.720
And then the at-large are
based on a state-wide vote.

00:08:51.720 --> 00:08:54.670
Now, you could imagine the
other kind of unfair thing

00:08:54.670 --> 00:08:57.860
here, other than the popular
vote versus the Electoral

00:08:57.860 --> 00:08:59.010
College vote.

00:08:59.010 --> 00:09:02.570
You could imagine it makes
some states better represented

00:09:02.570 --> 00:09:03.750
than others.

00:09:03.750 --> 00:09:07.820
So if you just divide population
by the number of electors,

00:09:07.820 --> 00:09:10.105
you see the larger
states, each elector

00:09:10.105 --> 00:09:12.090
is representing many,
many more people.

00:09:12.090 --> 00:09:13.340
This is California right here.

00:09:13.340 --> 00:09:16.350
Each elector is representing
over 600,000 people.

00:09:16.350 --> 00:09:19.000
And in the smaller states--
this is Wyoming right here--

00:09:19.000 --> 00:09:24.436
each elector is representing
under 200,000 people.

00:09:24.436 --> 00:09:25.810
So in Wyoming,
people are getting

00:09:25.810 --> 00:09:28.650
kind of three times the
representation as they would

00:09:28.650 --> 00:09:30.870
in California on
a per capita vote.

00:09:30.870 --> 00:09:32.870
But what makes it even a
little bit more skewed,

00:09:32.870 --> 00:09:35.800
because it's winner take all
and the candidates aren't silly

00:09:35.800 --> 00:09:37.550
and they want to make
sure that they spend

00:09:37.550 --> 00:09:39.841
their money and their visits
and their time in the most

00:09:39.841 --> 00:09:43.340
leveragable way, it actually
creates this weird scenario

00:09:43.340 --> 00:09:46.110
where candidates
will often ignore

00:09:46.110 --> 00:09:48.165
huge parts of the population.

00:09:48.165 --> 00:09:50.040
And they ignore them
because those huge parts

00:09:50.040 --> 00:09:53.430
of the population are unlikely
to swing one way or the other.

00:09:53.430 --> 00:09:56.430
So for example,
California is very

00:09:56.430 --> 00:10:03.130
reliably Democratic and Texas
is very reliably Republican.

00:10:03.130 --> 00:10:05.770
So this right here-- this is
a fascinating graph, at least

00:10:05.770 --> 00:10:10.930
in my mind-- it shows where
George W. Bush and John

00:10:10.930 --> 00:10:15.200
Kerry spent the last five
weeks of the 2004 election.

00:10:15.200 --> 00:10:16.450
Let me close that right there.

00:10:20.030 --> 00:10:23.074
This top graph shows where
they actually spent their time,

00:10:23.074 --> 00:10:24.490
so each of these
little hands here

00:10:24.490 --> 00:10:26.560
is a visit in those
final five weeks.

00:10:26.560 --> 00:10:28.050
And each of these
dollar signs is

00:10:28.050 --> 00:10:31.400
a million dollars spent on
marketing and advertising,

00:10:31.400 --> 00:10:33.900
on ads and whatever
else, in those states.

00:10:33.900 --> 00:10:37.450
And you can see, California and
Texas, the two biggest states,

00:10:37.450 --> 00:10:39.778
they didn't spend enough
money to the threshold

00:10:39.778 --> 00:10:41.236
to get dollar a
sign written there.

00:10:41.236 --> 00:10:42.735
So they didn't even
spend $1,000,000

00:10:42.735 --> 00:10:43.710
on these huge states.

00:10:43.710 --> 00:10:46.940
They only had a few
visits to California,

00:10:46.940 --> 00:10:51.690
and Texas had no visits
in the final five weeks.

00:10:51.690 --> 00:10:53.470
So what happens
is that candidates

00:10:53.470 --> 00:10:55.860
spend a disproportionate
amount of attention and money

00:10:55.860 --> 00:10:58.230
in the states that are
more likely to swing

00:10:58.230 --> 00:10:59.150
one way or another.

00:10:59.150 --> 00:11:01.840
So the people in
Florida or in Ohio--

00:11:01.840 --> 00:11:04.970
so this is Ohio and Florida--
got a ton more attention,

00:11:04.970 --> 00:11:08.440
especially on a per person
basis, than the people in Texas

00:11:08.440 --> 00:11:09.990
did.