Tsunami Relief, Foreign Aid, Social Security

Dear Friends,

The following is one of the occasional math/stats newsletters put together by Bill Briggs and myself. Instructions for subscribing or unsubscribing are at the end of the message. Hope you find it useful.
Jeff

1. Tsunami Relief Numbers. The devastating tsunami that swept across the Indian Ocean on December 26, 2005 is surely one of the most widespread natural disasters in civilized history. four weeks after the disaster, the number of fatalities is still not well known but estimated to be over 225,000, with millions more suffering from injuries, illness, loss of home, or the traumatic effects of loss of family. The world has responded with a relief effort in many ways unprecedented. The U.S. has been a leader in the effort, not only by making significant financial contributions but also by providing military personnel to help with the effort, particularly in reaching remote areas. Nevertheless, while the U.S. is among the leaders in the absolute sense, the per capita numbers are much lower. Without any commentary about whether we should or could have done more, the relief numbers provide a good opportunity for student discussion about how generosity is measured, and about whether our perceptions of ourselves agree with reality.

The following table shows the countries that had pledged the most government aid to the tsunami-devastated countries as of January 7, 2005. Important notes: (i) The figures include only government assistance, not private contributions. (ii) They do NOT include the value of direct assistance, such as the military assistance provided by the United States. (iii) The numbers are pledges, not actual contributions; sadly, in previous disaster relief efforts, many pledges were left unfulfilled.

Questions you might want to ask your students in class:

• Add a fourth data column to the table in which you calculate the per capita (per person) contribution for each country. (Hint: Divide the actual aid by the population.) (Answers, top to bottom: $40.55, $8.16, $3.92, $1.19, $1,72, $1.59, $8.22, $0.046)
• The table now shows 3 measures of "generosity": the absolute amount of aid; the aid relative to the gross domestic product (GDP), which is the total value of all goods and services produced within the country during a given year; and the per capita aid. Which of these do you think gives the best measure of "generosity," and why? Can you think of any other ways to measure generosity? Explain.
• Finding the total value of private charitable contributions is more difficult. However, as of Jan. 15, charitable contributions by individual Americans are estimated to have totaled about $350 million. Based on this number, how much has the average American donated to the tsunami relief effort? (Answer: about $1.20.)

2. Looking Beyond the Tsunami. We can also consider aid to poor countries from the United States. Here are some figures from 2003:

• Total U.S. GDP = $10.4 trillion
• U.S. Federal spending = $2.16 trillion
• U.S. government foreign aid = $16.3 billion
• private contributions by U.S. citizens to poor nations = $6.6 billion
• total private charity by U.S. citizens, including contributions to religious groups = $241 billion

Questions to ask in class:

• Based on these numbers (above):
  a. Calculate the percentage of U.S. federal spending that goes to foreign aid. (Answer: 0.75%)
  b. Calculate the percentage of U.S. GDP that goes to foreign aid, including both private and government contributions. (Answer: 0.2%.)
  c. Calculate the per capital amount of money that Americans give to foreign aid, including both private and government contributions. Convert this to an amount of giving per day. (Answers: per capita annual = $77.90; per capita daily = 21 cents.)
• Based on the given data, do you think Americans are generous or stingy with foreign aid? Defend your opinion. What about with charity overall?
• Polls show that Americans believe, on average, that about 25% of the U.S. budget is spent on foreign aid. As the numbers above show, the actual amount is significantly less than 1%. Why do you think perceptions differ so much from reality? Do you think Americans would support a different level of foreign aid if they knew the reality?

3. Comparative Disasters: The catastrophic effects of the tsunami should never be downplayed. Nevertheless, the total loss of life was smaller than that due to many other preventable and ongoing disasters. For example, in the same month that the tsunami took 225,000 lives, an estimated 165,000 people died from malaria and 240,000 people died from AIDS.

Questions for class:

• Based on the given numbers, how many people die each year from malaria? from AIDS?
• Malaria is generally treatable and most of the deaths occur because of lack of available medicine. Effective malaria treatment costs about $1 per dose. Overall, health economists estimate that spending $2-3 billion on malaria treatment and prevention (over a period of years) could prevent more than 1 million malaria deaths per year. Do you think that preventing malaria deaths should be considered a priority by the developed nations of the world? If so, how do you think the needed money should be raised? (E.g., from governments, from private citizens, etc.)
• Research the impact of malaria, AIDS, or some other disease in poor nations. Write a short report on your findings, and state your opinions about what, if anything, should be done by developed nations.

[Note on sources for 1-3: we used a variety of sources for this topic, including the U.S. State Department, the U.S. Census Bureau, the Organization for Economic Cooperation and Development, the American Association of Fundraising Counsel, and articles from the Washington Post and New York Times.]

4. Social Security in the News: Social Security is much in the news these days, with some people arguing that its budget represents a "crisis" and others saying the crisis is a politically-inspired myth. What is the truth? Like all political topics, it’s possible to look at Social Security from many different angles and come to many different conclusions. Nevertheless, the basic facts in this case are generally agreed upon. Here, we present a brief summary; for more details, see the discussion in our book, Using and Understanding Mathematics, pp. 292-5 in the third edition. The key facts:

• (i) Social Security benefits are currently paid out from money collected from payroll taxes.
• (ii) For the past couple decades, payroll taxes have exceeded the amount needed for benefits by a significant amount. The "excess" payroll taxes have been deposited in the "Social Security Trust Fund" with the intent that they be saved to pay benefits in the future, after payroll taxes no longer exceed benefits. This trend of collecting more social security tax than is being paid out in benefits is expected to continue for at least another decade.
• (iii) The government estimates that by the time benefits exceed taxes (around 2018), the Social Security trust fund will have a balance of more than $3 trillion. This, along with estimates of ongoing payroll taxes and benefit payments, should be enough to keep Social Security solvent for at least 2-3 decades, and possibly longer.
• (iv) HOWEVER: The government has borrowed every cent every deposited into the social security trust fund. Thus, the fund has no actual cash on hand, only promises from the rest of the government to pay back what has been borrowed; these promises are in the form of Treasury issues, backed by the "full faith and credit" of the United States government. In other words, the moment that benefits begin to exceed payroll taxes, the rest of the government will have to find a way to start paying back its obligations to the trust fund. As we all know, the only ways it can pay this money back are by: (1) cutting spending in other areas to free up the needed money; (2) borrowing more money and hence increasing the national debt; or (3) raising taxes. None of these options are politically popular…
• Bottom line: Looked at in isolation from the rest of the government budget, Social Security has a sufficient trust fund balance and ongoing income to keep it solvent for decades. However, because the fund actually represents obligations from the rest of the government, the government will face a problem much sooner, as soon as benefits begin to exceed payroll tax collections.

Questions for class:

• Based on the above facts, is it fair to say that we face a social security "crisis"? Defend your opinion.
• Crisis or not, social security faces long-term problems that will require at least some changes to prevent problems for future generations. What do you think should be done to prevent long-term problems? Defend your opinions.

All for now!