Latest / Words & Numbers / Episode 405: $22,000,000,000,000,000,000,000,000,000,000,000

Transcript

Episode 405: $22,000,000,000,000,000,000,000,000,000,000,000 · Words & Numbers

• 0:00
  Hi, I'm James and I'm Anthony. And this is words and numbers
• 0:07
  brought to you by the fine people at Khaki, the Center for
• 0:10
  American Culture and Ideas. Ant it's cold today in Arizona,
• 0:15
  59° and raining cats and dogs in the desert literally all day,
• 0:20
  not 5 minutes. And this is the day of the dead
• 0:23
  as we record this. So I'm going to go out and watch
• 0:25
  a parade in this horrific weather.
• 0:27
  So I'm in an uncommonly good mood, which leads me to hope and
• 0:31
  dream that you might actually be able to continue it when I ask
• 0:35
  what's new and exciting in your world this week?
• 0:38
  I ran across this thing that as soon as I saw it, I knew I had
• 0:42
  to mention it in in fact, we're going to make a whole episode
• 0:45
  out of it today, actually. You might recall that on an
• 0:48
  episode not too terribly long ago, I announced.
• 0:51
  Is that the correct word? I mean, who could have doubted
• 0:54
  it in the first place? My love of mushrooms.
• 0:57
  Not the kind you eat. I hate the kind you eat.
• 0:59
  Mushrooms are disgusting. We've.
• 1:00
  Been getting e-mail on that and we have.
• 1:04
  People have been asking us to do an episode while under the
• 1:07
  influence of mushrooms, which I think is the greatest.
• 1:11
  Idea. In the history of ideas, because
• 1:15
  I know I'd walk right through it and you would be planted X the
• 1:18
  entire time. This is what I really want.
• 1:20
  Well, the. Cameras on, you can see the cops
• 1:22
  come in one, then the other hauls away Well.
• 1:25
  Just that, aunt, we might not have to do it, because this week
• 1:28
  I want to talk about a ballot initiative in the People's
• 1:31
  Republic of Massachusetts, where they're looking to become the
• 1:35
  third state to decriminalize mushrooms.
• 1:38
  Wow. How about that?
• 1:41
  We might be able to do this episode legally, which
• 1:44
  admittedly takes half the fun right out of it.
• 1:47
  You know, here we are, two days before the election.
• 1:50
  I have literally no idea how this is going to work out.
• 1:53
  All I've got to say is, I hope you're happy with yourselves
• 1:57
  however it worked out. I hope you're happy with
• 1:59
  yourself and that's. Assuming it has worked out by
• 2:01
  the time this airs, it's entirely possible that it's
• 2:04
  still up in the air. That's right, it'll only be a a
• 2:06
  week or two. We're probably not going to have
• 2:09
  a conclusion. And that brings me to another
• 2:11
  thing, actually, because all of the election conspiracy people
• 2:15
  lose their minds when states say we are not going to have a
• 2:18
  result on election night. Well, shouldn't they lose their
• 2:22
  minds if a tightly contested state has a result very quickly?
• 2:28
  Wouldn't that make more sense? It's going to take a while to
• 2:31
  count these stinking votes. And you know, California and New
• 2:35
  York can declare that Kamala Harris won those states 5
• 2:40
  seconds after the polls close, because that's what's going to
• 2:43
  happen. Well, Wisconsin, Iowa, no.
• 2:48
  Pennsylvania, absolutely not. They're going to take a minute.
• 2:52
  I looked this up not too long ago and most states have two to
• 2:55
  three weeks by their own laws after the election to come up
• 2:59
  with their final result. So the exit polls that the media
• 3:03
  announces, am I correct? Those are people literally
• 3:06
  standing outside the voting area asking people as they come out
• 3:10
  who they voted for. That's correct.
• 3:12
  And you can see why that's not going to work anymore, right?
• 3:15
  Because 10s of millions, maybe even 100 million Americans are
• 3:19
  going to vote ahead of time. Yeah, I did.
• 3:22
  Does that skew one way or the other?
• 3:24
  I don't know it could. It could.
• 3:27
  Does it skew male or female? It does.
• 3:30
  What does that mean to an exit poll that has to balance all of
• 3:33
  these things? And This is why polling is so
• 3:36
  difficult right now. It's not just that you ask
• 3:39
  people who they want to be president.
• 3:40
  You do that. But then you have to ask, are
• 3:43
  you a likely voter? If you're a likely voter, did
• 3:45
  you actually vote? Are you a Democrat or a
• 3:48
  Republican? Are you an independent?
• 3:50
  Are you male or female? How old are you?
• 3:53
  All of these things, in addition to scores of others, have to be
• 3:57
  balanced. And what we've seen over time,
• 3:59
  the last two elections, Donald Trump's vote has been
• 4:02
  underestimated pretty considerably.
• 4:04
  When that happens in pollsters adjust their methodology, right?
• 4:10
  Is Trump's vote going to be overestimated now because of the
• 4:13
  adjustments? I don't know.
• 4:15
  We'll find out after the fact. Polling is great at predicting
• 4:18
  the past. It's only marginally good at
• 4:20
  predicting the future. I have this gut feeling that
• 4:24
  people, particularly people in more liberal areas who are going
• 4:29
  to vote for Trump, are going to be loath to admit it.
• 4:33
  Well, and that's the David Duke phenomenon, right?
• 4:35
  When Duke was running for offices, I believe it was
• 4:37
  governor, maybe senator of Louisiana.
• 4:40
  He was a Klansman, and a pretty proud Klansman actually, and
• 4:45
  when asked, people would never admit that they were voting for
• 4:47
  him, and his vote dwarfed the predicted vote.
• 4:50
  Yeah, my own experience, I went to vote early, I guess maybe two
• 4:55
  or three weeks ago. But nonetheless, I go there and
• 4:58
  they've got the election workers out front, of course, they're
• 5:01
  handing out pamphlets and whatnot.
• 5:03
  And, you know, I just kind of automatically take the one that
• 5:07
  the first woman I encountered was handing out for Donald Trump
• 5:11
  in the way that I realized this is she's handing out the paper.
• 5:15
  And I'm not even listening to her.
• 5:16
  I just take it. And she has a surprise look at
• 5:19
  her face. And I look and I see it's
• 5:21
  paperwork for voting Republican. I said to her, you seem quite
• 5:24
  surprised. She said, well, yeah, you know,
• 5:28
  not many people around here would take this.
• 5:30
  But then I went and took one from the Democratic woman as
• 5:32
  well, just so I look even handed.
• 5:35
  We've got the foolishness of the week.
• 5:37
  You might recall, Aunt, when I picked on your beloved Catholic
• 5:41
  Church recently when they had chat bots taking confession do.
• 5:46
  You remember this father, whatever his name was.
• 5:49
  Not to be left out in the cold, here comes the Episcopalian
• 5:54
  Church with Churchy Answers that Help You.
• 5:58
  Also known as Kathy, an AI chatbot that answers faith-based
• 6:03
  questions from the perspective of a friendly, knowledgeable
• 6:06
  Episcopalian. And I'm going to take it they
• 6:08
  didn't learn anything from the Catholics.
• 6:10
  Here, as is so often the case, so often because we've watched
• 6:15
  the Catholics step into an open manhole and.
• 6:20
  It said hold my beer. Clutching to the frock of the
• 6:25
  cleric in front of them. Here, here come the
• 6:28
  Episcopalians. I got nothing else.
• 6:31
  That's enough, right? That's just.
• 6:33
  It didn't blow up on them. Oh.
• 6:35
  No, it's not working correctly and it apparently punts badly
• 6:39
  when asked how to deal with social anxiety.
• 6:42
  But you know, grown adults shouldn't be asking about social
• 6:45
  anxiety in the 1st place. That they should maybe and hear
• 6:48
  me people, suck it up and get on with life.
• 6:51
  Businesses have got to be really careful here.
• 6:54
  There was a court case and it was a lower court ruling
• 6:57
  recently where in some business I it sticks in my mind.
• 7:02
  It was an airline. But although don't quote me on
• 7:04
  that, somebody complained the chatbot promised to give the
• 7:07
  money back. The company never gave the money
• 7:09
  back. The guy sues in, the company
• 7:13
  says. You're on the hook for that.
• 7:14
  You start the chat bot in motion.
• 7:16
  You're on the hook. That's what the court said, that
• 7:18
  you put this chat bot out there representing you and you know,
• 7:21
  if it says the wrong thing, that's on you buddy.
• 7:23
  It's not on the customer. That's right, that's right.
• 7:26
  I think it's more on a chat bot than it is on a human.
• 7:29
  And what happens when at some point you get Episcopalian
• 7:33
  church, Catholic Church, whatever, fill in the blank,
• 7:35
  some other thing with their chat bot that's designed to help
• 7:38
  people in some way, and the chat bot goes off the rails and
• 7:42
  starts advising them to commit suicide?
• 7:45
  Well, I'm more looking forward to when the chat bot advises
• 7:48
  them to convert to Judaism. For One Stop shopping for all
• 7:55
  things James and Aunt, visit our website wordsandnumbers.org.
• 8:01
  We give a special shout out to our Patreon sponsors who help us
• 8:05
  keep the lights on. If you'd like to contribute, go
• 8:08
  to patreon.com/words and Numbers.
• 8:12
  I found this thing and it was going to be my quick hit and I
• 8:15
  sent it off to James and said oh, look at this interesting
• 8:17
  thing. For a hot second, it was going
• 8:19
  to be the foolishness of the week, too.
• 8:21
  Yeah, and then we decided that we could actually do a whole
• 8:24
  episode on this. But here's what would have been
• 8:27
  the quick hit. A court in Russia has fined
• 8:31
  Google because when? You've already lost me, you said
• 8:34
  a court in Russia and I tuned right out.
• 8:37
  This is not where we go to find out about justice, common sense,
• 8:41
  or much of anything. Else right, which will become
• 8:43
  clear in a moment. But when Russia invaded Ukraine,
• 8:47
  Google shut off from YouTube, some Russian government
• 8:51
  sponsored channels and the Russian government sued and the
• 8:55
  Russian court said, verily yes, Google should not have shut off
• 8:59
  these YouTube channels and find Google.
• 9:02
  And this was back in 2020, $1000 a day.
• 9:05
  But here's the kicker. It doubled every day that went
• 9:09
  by the Google did not pay. That's going to yield to the
• 9:13
  fantastical amount very quickly. Yes, it is now up to 20
• 9:17
  decillion dollars. Go ahead and tell the people
• 9:20
  what a decillion even is. We'll see.
• 9:22
  This gets really hard, James. I'll read off.
• 9:26
  And this is in thousand orders of magnitude.
• 9:28
  So you got $1000. Then you go to a million, which
• 9:31
  is 1000 * 1000. Then you go to a billion, which
• 9:34
  is 1000 * 1,000,000, right? So million billion trillion
• 9:39
  quadrillion quintillion sextillion septillion octillion
• 9:43
  non trillion decillion. It's a 2 followed by 33 zeros.
• 9:48
  CNN reported that this was a 2 followed by 36 zeros.
• 9:53
  CNN is off by a factor of 1000, and yet they're basically right.
• 10:01
  Two decillion dollars. So just to give you some
• 10:04
  perspective here, I don't know if the perspective works if you
• 10:08
  think about just the interest on 20 decillion.
• 10:12
  So forget about the 20 decillion fine, just pay interest on a
• 10:15
  loan of that amount. If Google were to borrow that
• 10:19
  much money and using it to pay off the fine that it has, the
• 10:24
  interest on 20 decillion is about 3 septillion, see.
• 10:28
  And that doesn't help us at all, right?
• 10:30
  No, because 3 septillion and 20 whatever.
• 10:34
  It was. It's still the same number,
• 10:37
  right? So it's still the same number.
• 10:38
  This isn't going to help either. But the interest on that on a
• 10:42
  per second basis is more than 10 times the number of stars in the
• 10:46
  universe, right? So what do you do with this,
• 10:49
  right? We're to take the entire world
• 10:51
  GDP and put it just toward the interest on the fine.
• 10:56
  Forget about the fine, put toward the interest on the fine.
• 10:58
  It's too little by a factor of 10 quintillion.
• 11:01
  The numbers are just absolutely ridiculous. 10 quintillion,
• 11:06
  another number that we cannot understand.
• 11:09
  The court could have just said you owe Infinity dollars and
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  functionally it would have been the same answer, but everybody
• 11:15
  would understand it. And here the court missed a
• 11:19
  beautiful opportunity because what they should have done is
• 11:23
  find them a Google. Right, a Google Dollars.
• 11:32
  How do you miss that? I guess maybe most people don't
• 11:35
  know that Google is a number. Right.
• 11:37
  Yes, one. No, it's 10 to the 100th power,
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  I think 1 followed by 100 zeros, something like that.
• 11:44
  But we're back into this space of ridiculous numbers.
• 11:46
  That's right. But why not find them a Google
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  and I I think you know the original find was surely in
• 11:52
  rubles, so maybe that makes some kind of difference.
• 11:55
  Oh, no, this has been converted to dollars now.
• 11:57
  OK, perfect. And this is the thing that is
• 12:00
  kind of interesting to me, talking as much as I do about
• 12:04
  the federal debt. I'm used to trying to help
• 12:07
  people understand numbers in the billions and trillions and what
• 12:10
  this means. But this this number is so far
• 12:14
  beyond that I cannot tell you. Whenever we wrote about the
• 12:18
  debt, which was quite a lot, you would always say the same thing.
• 12:21
  We need an analogy to explain this, but then we need an
• 12:23
  analogy to explain the analogy. Right here we're like six or
• 12:27
  seven analogies deep to get to this number I.
• 12:31
  Suspect we might be far deeper than this.
• 12:35
  Is the world GDP dwarfed? Oh yeah.
• 12:38
  Dwarfed. Like we're talking about a grain
• 12:40
  of sand versus the sun that kind of dwarfed.
• 12:44
  Literally the output of planet Earth wouldn't make a dent in
• 12:49
  this file. So what on earth is this court
• 12:53
  trying to accomplish? Yeah, I think somebody just
• 12:56
  wasn't thinking through the power of doubling.
• 12:58
  Do you know that story? I don't know if it's true
• 13:01
  because it dates back apparently thousand years plus of the guy
• 13:05
  who invented chess. The story is the guy invented
• 13:09
  chess and he brought it to whoever it was.
• 13:11
  This was, you know, multiple thousands of years ago the king
• 13:14
  and said I've got this game. The king loved it and said, you
• 13:17
  know, whatever you want, I'll give you palaces, land, cows,
• 13:21
  whatever. And the guy said I don't ask for
• 13:23
  much. I want 1 grain of sand for the
• 13:26
  first square on the chess board, 2 for the next, 4 for the next
• 13:30
  doubling for each of the squares on the chess board.
• 13:33
  There's only 64 squares there. Well, it turns out that you
• 13:36
  double for 64 squares and you end up with a number like this.
• 13:39
  It's unbelievably large, so the king ends up just killing the
• 13:43
  guy. Well, he did overreach.
• 13:49
  Yeah. So to this court, I mean, the
• 13:50
  overreach is so gargantuan that I mean, you just walk away from
• 13:55
  this. It's not worth anybody's time to
• 13:57
  even address this. Nobody can take this seriously.
• 14:01
  Yep, I say this often, and it's almost always in the context of
• 14:05
  California's idiotic regulations on businesses and what have you.
• 14:09
  Just don't do business there. And you know, if Alphabet wants
• 14:15
  to shut down all of its offerings to the country of
• 14:18
  Russia, so be it. There's no rule that says they
• 14:22
  have to get Google and YouTube and Gmail and all the rest.
• 14:27
  Let's see what that country looks like when Google flips a
• 14:31
  switch and nobody there can use any of their services.
• 14:35
  Wouldn't that be something I would love to be a family on the
• 14:38
  wall if and when that ever happened?
• 14:40
  I mean, can you just imagine it shutting off all the Gmail
• 14:43
  addresses to an entire country with no warning just overnight?
• 14:48
  Which is why, incidentally, you might want to backup your
• 14:50
  e-mail. I'm just saying these sorts of
• 14:52
  things happen, right? But, you know, this gets us into
• 14:55
  a broader consideration, something that we've talked
• 14:58
  about before, and that's the time value of money.
• 15:02
  Yeah. And this is a little bit
• 15:04
  different because we've done an episode on the time value of
• 15:06
  money maybe a year ago, maybe a bit less.
• 15:09
  Yeah, it was a while back. And I want to talk about
• 15:11
  something here that's related to that, but it is a distinct idea
• 15:15
  and that is that you can equate stocks of money to flows of
• 15:21
  money. And maybe a good way to think
• 15:23
  about this is think about the Mega Millions.
• 15:26
  The Mega Millions. I've just looked it up as of
• 15:28
  today. Yeah, I'm planning on winning
• 15:30
  this week. Right.
• 15:31
  The prize before taxes is 300 million.
• 15:34
  After taxes, it's 216. The government takes a healthy
• 15:39
  bite. Yeah, taxes take a huge bite,
• 15:41
  but it gets worse than that because what happens is Mega
• 15:45
  Millions will give you the choice of you can have your
• 15:49
  prize broken out, or maybe they don't give you a choice.
• 15:53
  No, they give you a choice. You got a lump sum or an
• 15:55
  annuity? Lump sum or annuity?
• 15:57
  Yeah. And the annuity an.
• 15:58
  Annuity is always a sucker bet. It is the sucker bet, but that's
• 16:02
  how they came up with the $216 million number.
• 16:05
  It's $216 million, but payable over 30 years.
• 16:10
  So you take 216 / 30, that's like $7,000,000 a year that they
• 16:16
  be paying you and they do the math.
• 16:18
  They say, look, that's $216 million.
• 16:21
  Or you can have less if you take a lump sum.
• 16:23
  Yeah. And here's the thing, How do you
• 16:25
  come up with the lump sum? And that's the topic that we're
• 16:27
  talking about here of equating stocks and flows and the
• 16:31
  $7,000,000 a year, you call that a flow.
• 16:35
  You got a flow of money, a stream of income that's going to
• 16:37
  come in overtime, $7,000,000 a year, or you could take a lump
• 16:41
  sum right now. That's the stock.
• 16:43
  And it turns out there's an, well, I shouldn't say an easy
• 16:46
  way, but there is a way to ask the question, which of those two
• 16:51
  animals is the better deal? And it wouldn't seem like there
• 16:55
  is a way to do that because it seems like you're comparing
• 16:57
  apples and oranges here. But actually there's a way to do
• 17:00
  that. Maybe a an example is good here.
• 17:03
  Let's suppose you have $1000 and you could spend it now or you
• 17:09
  can invest it. And as it accrues interest every
• 17:13
  year, you spend the interest. Forget about inflation for the
• 17:17
  sake of argument. You get 5% interest so you put
• 17:20
  your thousand in the bank. Every year it creates $50.00 in
• 17:24
  interest income. So the choice in front of you is
• 17:28
  do I spend my $1000 right now, or do I spend $50 a year
• 17:33
  forever? Spend it now.
• 17:35
  Well, see, but there's no right answer to this right people's
• 17:38
  answers. There it is.
• 17:38
  I can't buy. I take me 10 years to buy a
• 17:41
  PlayStation if I wait with the interest.
• 17:43
  Yeah, see, but that's the thing. Someone who is older might well
• 17:47
  say, well, give me the $1000 now, Someone who's younger has,
• 17:50
  you know, 90 years of life in front of them may come back and
• 17:54
  say, well, no, $50 a year over 90 years is substantially more
• 17:59
  than 1000. I'd rather take that there's not
• 18:02
  a right answer, but we are able to.
• 18:05
  This is the question that's asked of children all the time.
• 18:08
  Yes, you are. Do you want the cookie now or
• 18:10
  two cookies later? Or you want 2 cookies tomorrow
• 18:13
  and every child grabs the cookie.
• 18:15
  Right, right. Look, you're dangling something
• 18:18
  in front of people, and that's motivational to begin with, but
• 18:22
  there's always the possibility that tomorrow doesn't come.
• 18:26
  Oh yes, Oh yes. And by tomorrow I'm not coming.
• 18:30
  I don't mean the world ends. I mean just that the person
• 18:32
  doesn't show up with two cookies.
• 18:34
  Yeah, or he does, and for whatever reason you don't like
• 18:38
  cookies anymore. Not hungry.
• 18:40
  I mean, there's a million different ways to sort this out,
• 18:43
  but the easy way to look at it is a bird in the hand is worth 2
• 18:48
  in the Bush. And with government, say, and
• 18:51
  the government runs the lottery, do you trust the government will
• 18:54
  pay you every year for the next 30 years?
• 18:56
  Or will they just merely confiscate that wealth at some
• 18:59
  point in the future? Right.
• 19:01
  And that has to be part of your calculation.
• 19:03
  So there are these calculations and you can run them so that you
• 19:06
  can do this thing and it comes down, you know, in practical
• 19:10
  uses. For example, if you got a choice
• 19:13
  when you retire, some of us are going to have your employer
• 19:17
  offers you a monthly pension for as long as you live or a lump
• 19:21
  sum, some amount of money right now, which how do you know which
• 19:25
  of these two things is better? I mean you can answer at a gut
• 19:28
  level, but the gut level isn't necessarily the best way to look
• 19:31
  at or I should say, let me say it differently.
• 19:33
  What you should do is run the math and there are ways to do
• 19:37
  this. You run the math to say OK,
• 19:39
  $1000 a month for the next 20 years is equivalent to $150,000
• 19:45
  in my hand right now. OK, then the question before you
• 19:48
  is you bring in your gut and you do things like you were doing of
• 19:52
  saying well I would much rather enjoy 150,000 now than 1000 a
• 19:56
  month overtime or whatever it is.
• 19:58
  How many months am I going to live?
• 20:00
  How many months are you going to live exactly right.
• 20:02
  Yeah, for simplicity of ignored inflation, but that becomes an
• 20:06
  issue too. Do you anticipate there's going
• 20:08
  to be higher inflation in the future, which case maybe you
• 20:11
  want the money now? Maybe.
• 20:13
  And I think it's possible that this kind of decision may end up
• 20:18
  being foisted upon younger generations as Social Security
• 20:22
  tries to figure out how it's going to continue.
• 20:25
  One possibility is that Social Security might turn to near
• 20:29
  retirees and say, OK, you can have your Social Security
• 20:34
  benefits as we promised them, or we'll cut you a check right now
• 20:37
  for this amount and that's all you get.
• 20:39
  Yeah, unfortunately, that's not going to work for Medicare.
• 20:42
  No, it's not going to work for Medicare.
• 20:43
  And in fact, I think it would be a fool's errand with Social
• 20:46
  Security because what would happen is so many people would
• 20:50
  not do the math. They'd take the amount of money,
• 20:52
  they'd blow it, and then all of a sudden we'd be faced with a
• 20:55
  social problem of hundreds of thousands of elderly having
• 20:59
  blown through their money and no Social Security left.
• 21:02
  And we'd also end up with massive wholesale inflation
• 21:06
  again. You then you got that problem
• 21:07
  when everybody turns around, buys a new car simultaneously,
• 21:10
  right? Yeah.
• 21:11
  Well, the easy question to ask here is why is it the people
• 21:15
  have such trouble understanding the nature of money?
• 21:19
  I think because people bring an emotion to money and not to say
• 21:24
  that emotion has no role, emotion preference does have a
• 21:27
  role, but that's got to be the end game.
• 21:30
  You got to begin with a look at the cold hard facts.
• 21:34
  Let me give you some numbers here.
• 21:35
  I'm going to do a sports thing. Brace yourself everybody.
• 21:39
  Arizona Cardinals quarterback is a ninth most highly paid
• 21:42
  quarterback in the NFL. And he's not the 9th best
• 21:46
  quarterback in the NFL. Yeah, I can't speak to that.
• 21:48
  Kyler Murray, his contract, it's a five year contract for $230
• 21:54
  million. So what they do is they pay him
• 21:56
  $46,000,000 a year over five years.
• 22:00
  Do the math, $230 million. And that's the way they describe
• 22:04
  it. They say this is a $230 million
• 22:06
  contract. In fact, it's not worth $230
• 22:09
  million because he'll receive 46,000,000 a year.
• 22:14
  Five years. That's not the same as 230
• 22:18
  million in his hand right now. That's right.
• 22:21
  And you can do the. Math here and the number is
• 22:23
  about 180 cash in hand right now.
• 22:26
  Why the difference? Well, the difference in part
• 22:29
  it's inflation because five years from now 46,000,000 is not
• 22:33
  going to buy you what it buys today.
• 22:34
  Part of it's that part of it is simply he has to wait, that we'd
• 22:38
  all rather have money now than later.
• 22:40
  You'd rather have the cookie now than later.
• 22:42
  He's got to wait five years as this money builds up.
• 22:45
  And combined with that is your issue of, well, what happens
• 22:50
  over those five years? Does he have a debilitating
• 22:52
  injury such that he can't enjoy the 46,000,000 nearly as much as
• 22:56
  he would have otherwise? Does he die, in which case he's
• 22:59
  not going to enjoy the 46 million.
• 23:01
  And so for all of these reasons, his contract in terms of cash in
• 23:06
  hand today is not 230 million, it's about 180, still a lot.
• 23:11
  But not the same. Yeah, still a lot.
• 23:12
  But not the same. But this kind of math is the
• 23:16
  math that businesses do all the time.
• 23:19
  Everything from conducting R&D on a new product line all the
• 23:23
  way down to deciding whether to hire this particular guy who
• 23:27
  wants a $90,000 salary when we offered him 85.
• 23:30
  We do the present value calculations here and we figure
• 23:34
  out what is this guy in cash in hand today costing the company
• 23:38
  and they make a decision. So companies are doing this all
• 23:40
  the time, households not so much.
• 23:43
  When we talk about unfunded liabilities that Social Security
• 23:47
  has, the way we talk about this is we say, well, Social Security
• 23:52
  is promised to pay money to some people overtime.
• 23:56
  It anticipates collecting some tax revenue overtime.
• 24:00
  And the amount that it's going to pay out is going to be bigger
• 24:02
  than the tax revenue. And the difference there is $75
• 24:06
  trillion. And people say, well, hang on,
• 24:11
  Social Security's doesn't owe $75 trillion right now.
• 24:14
  That's an amount of money it's going to owe over the next 75
• 24:17
  years. Yeah, except that 75 trillion is
• 24:21
  the result of this calculation I'm describing to you.
• 24:24
  That is, some smart people sat down and they said, OK, Social
• 24:28
  Security is going to have to pay out a certain amount of money
• 24:30
  every year for the next 75 years.
• 24:32
  It's going to collect a certain amount of money every year of
• 24:34
  this next 75 years. Put all these things together,
• 24:37
  do the present value calculations, and you come up
• 24:39
  with a number that number 75 trillion.
• 24:42
  And the way you interpret it, it's not that Social Security is
• 24:46
  going to be short 75 trillion over the next 75 years.
• 24:50
  It's that the amount that Social Security will be short over the
• 24:54
  next 75 years is financially identical to $75 trillion cash
• 25:02
  on the table right now, That sounds quite.
• 25:04
  Horrible. The point here?
• 25:06
  Is it's possible to talk about something that is occurring
• 25:11
  financially over many, many years and convert it into its
• 25:15
  equivalent number right now, reaching all the way?
• 25:17
  Back around, what would the Google court tell us in Russia?
• 25:21
  I guess this is not the way to go, right?
• 25:23
  There is no present value of that amount.
• 25:25
  No that. Is the present value.
• 25:28
  The 20 decillion is the present value, which means.
• 25:31
  There is no present value well which?
• 25:33
  Means that if Google were to actually attempt to pay this, it
• 25:37
  would end up paying way more than 20 decillion physical
• 25:41
  dollar bills because it'd be paying it over time.
• 25:43
  And it's not even worth talking about.
• 25:45
  It's Infinity. But here's something to think
• 25:48
  about. I was running some numbers for
• 25:51
  retirement for the average American.
• 25:53
  People are starting to ask me as I talk to older crowds now than
• 25:57
  I've talked to in the past, they start to ask me questions about,
• 26:00
  well, how much money do I need to have in savings to fund by
• 26:03
  retirement? And when someone asks that
• 26:06
  question, we do the same kind of calculations that we're
• 26:09
  describing here. We say, OK, here's a person
• 26:11
  who's going to live for so many years and spend a certain amount
• 26:14
  of money over the course of those years, and he needs to
• 26:17
  have a certain amount of money in the bank right now, the
• 26:20
  principal and interest of which will fund that lifestyle,
• 26:24
  whatever it is. And our economist goal here is
• 26:28
  to come up with that number. How much money do you need cash
• 26:30
  in hand right now? And I came up with kind of an
• 26:33
  interesting rule of thumb. And the rule of thumb?
• 26:37
  It's based on the average American, and it accounts for
• 26:41
  how much the average American has earned over time and how
• 26:44
  much the average American can expect to get from Social
• 26:47
  Security. And when it's all done, the
• 26:50
  answer is, how much do you want to spend when you retire,
• 26:56
  whatever that number is per year.
• 26:57
  Forget about where it's coming from, just how much per year do
• 27:00
  you want to spend when you retire?
• 27:02
  And you could think of it. A good rule of thumb is, well,
• 27:04
  whatever you're spending now, probably plus or minus, that's
• 27:07
  what you're going to want to spend when you retire.
• 27:09
  Whatever that number is, when all the dust settles, multiply
• 27:12
  it by either 10 or 20, and that's how much savings you
• 27:16
  need. You multiply it by 10 if you're
• 27:20
  going to burn through your savings so that by the time you
• 27:23
  die, nothing's left. You multiply by 20 if you want
• 27:28
  to leave your initial savings to your heirs and you're just going
• 27:32
  to live off the interest. So basically it's that.
• 27:34
  So you say, you know, I want to spend let's say $80,000 a year,
• 27:40
  OK, You're going to need anywhere from 800,000 and 1.6
• 27:45
  million. Now, of course, as we get older
• 27:47
  we spend less or if you're sickly, you spend more, right?
• 27:50
  So these things are up and down. You got insurance things.
• 27:52
  So don't take anything I've said as financial advice, but rather
• 27:56
  it's an illustration of the kinds of answers we can attempt
• 28:00
  to get at using this tool of present valueness and converting
• 28:05
  flows of cash into stocks of cash and most.
• 28:08
  People, for whatever the reason, aren't going to have $2,000,000
• 28:12
  upon retirement. No, not even.
• 28:14
  Close no. And that's a lesson of another
• 28:16
  kind. We don't prepare for our own
• 28:18
  futures because we don't exactly understand the weight of the
• 28:22
  future balanced against the weight of the present.
• 28:25
  Yeah. And I think part of the problem
• 28:27
  there is that we've been told their Social Security from the
• 28:30
  time you first start working your take Social Security taxes
• 28:33
  out. And you know, in some sense
• 28:34
  that's going to come back to you later on.
• 28:36
  And by the time you turn your attention to this and say, OK,
• 28:39
  what am I actually getting? What do I need to do?
• 28:42
  By the time most people start asking those questions, it's too
• 28:45
  late. Yeah, that's right.
• 28:46
  They. Look at the amount and they say
• 28:48
  Oh dear, right, that's not enough.
• 28:51
  So that's all I have. To say about that, that this is
• 28:53
  a thing that we use to talk about these sorts of numbers.
• 28:57
  Notice that I've hindered hard around how the calculations are
• 28:59
  actually done. The calculations are a little
• 29:01
  bit. You do that all the time.
• 29:02
  By the way, yeah, they're a little bit.
• 29:04
  More complicated what anyone is interested in going into here,
• 29:07
  but if you're particularly interested, if you got a
• 29:09
  financial calculator, they have these things built in.
• 29:12
  They're called present value and future value functions.
• 29:15
  If you like to play with Excel, Excel has those functions as
• 29:18
  well. You can just dork around with it
• 29:20
  and it becomes pretty obvious what kinds of numbers you need
• 29:23
  to put in to get the things out that you want.
• 29:25
  So you can't. Give us an equation.
• 29:27
  Oh, I could. Nobody wants to hear that
• 29:29
  though. Oh, aunt my.
• 29:32
  Heart would leap from my chest if you would just finally give
• 29:35
  us an equation. Do you take the cash flow for
• 29:39
  each year and divide it by 1 plus the interest rate raised to
• 29:42
  a power? And the power is the number of
• 29:44
  years that elapsed between now and the future and add that up
• 29:48
  for every single year? Wasn't nearly.
• 29:50
  As complicated as I wanted it to be, I will.
• 29:52
  I gave you the. Dialed down version.
• 29:55
  It's complicated enough that no one will even think about it
• 29:58
  from the moment they hear it forward.
• 30:02
  And that's all the. Time we've got this week on
• 30:03
  words and numbers. Until next time, send us e-mail.
• 30:06
  Wordsandnumberspodcast@gmail.com Try to be nice.
• 30:10
  To one person who doesn't deserve it till next week.
• 30:13
  Can't take it easy. See you next week, James.