Way back in 2004 I wrote about how the lack of an intuitive sense of scale prevented many people from viewing the Lancet Iraqi Mortality survey with skepticism. The same lack of sense of scale shows up in other areas such as in this article (via Megan McArdle) about ending subsidies to the oil industry instead of levying a windfall-profits tax.
The article argues:
However, one thing that I did notice when I was doing a little google-fu on the issue is that there appears to be approximately 20 to 50 billion dollars spent by the federal government per year on direct subsidies (as opposed to tax breaks) given to the oil industry each year.
I am all for yanking corporate subsidies but the author or his sources clearly pulled the $20-$50 billion number out thin air. It’s at least an order of magnitude off.
The entire discretionary budget runs only something like $730 billion a year, so the numbers given would come to roughly 3%-6% of the entire discretionary budget! Even Washington’s notoriously bad accounting couldn’t miss checks that big every year. I think that (1) somebody moved a decimal point and that (2) “direct subsidy” is used in the loosest possible sense.
Why couldn’t the numbers be accurate? Several reasons. First, mathematically the wide range given is implausibly inaccurate. The range really boils down to $35 billion plus or minus $15 billion. That’s like saying, “I think I spent $100 but it might have been $55, $145 or somewhere in between.” A sigma that big is just silly.
Second, the number implies an improbable behavior on the part of non-oil companies. How likely does it seem that the oil industry could get 5% of all discretionary spending without every other major industry getting just as big a slice? Why would other corporations support handouts to oil companies which the non-oil companies would have to pay for? (This is always the fatal flaw in conspiracy theories about oil companies. Oil companies may be huge but the aggregate size of all the companies that consume oil is many, many times larger.)
Most budgetary arguments revolve around this kind of nonsensical claim. Somebody fires off a number and others swallow it because they lack any sense of scale for the phenomenon under discussion. It would help if we could develop a standard for reporting government spending in some set ratios such as percentage of GNP. Otherwise, most discussions of government spending mean nothing.