“People who make this point about defense spending being a lower percentage of GDP than in the past are tacitly admitting that the defense budget is not about defense but about the defense industry. If the GDP doubles, does it suddenly become twice as expensive to defend the country? Of course not.”

Percent of GDP comparisons would probably make more sense for this post however.

This would tend to drop the accumulated worthy past expenditures totals a bit, but has no impact on the massive lunacy of our current credit wastage.

Taking out some of the worst offenders (AIG, Freddie & Fannie, Citi, GM/Chrysler/Ford, …) and running them through streamlined reorganizations (yes, ‘bankruptcies”, shooting the stockholders and bondholders along with the terminally diseased corporations) would flush a lot of the excess debt and give the surviving companies a fighting chance at long-term survival.

Sacrificing the rest of the economy to prop up these failing behemoths for a limited time seems like madness, and only delays and expands the eventual final accounting. No one is saved or spared by these actions. In the end, the only cure for too much unsupported debt is to eliminate it. Supporting it via printing money only spreads the pain, and the most severely inflicted will probably die anyway. Better to give them a quick, clean end and move on.

Failing to account for inflation-adjusted GDP growth allows us for the dramatic conclusion that all nine of these historic government expenditures listed do not add up to the cost of the 2008 bailouts. However, by taking into account inflation-adjusted GDP growth, we find that the cost of the nine expenditures listed had almost four times the impact as a collective than the 2008 bailouts are projected to have, when we factor in each expenditure relative to the inflation-adjusted GDP at the time of the expenditure.

The $115.3 billion cost of the Marshall Plan, for example, was a much bigger deal in 1947 than it would have been in 2007, since $115.3 billion was 7.3% of the GDP in 1947 but just 1% of the GDP in 2007. Likewise, the current bailout figure of $4.6 trillion, while an incredible 40% of the 2007 GDP, is a whopping 293% of the 1947 GDP.*

Gov’t Expenditures Inflation Adjusted As A Percent of Time-Relative Annual GDPs:

• Marshall Plan (1947): $115.3 billion/$1,574.5 billion GDP in 1947 = 7.3% of 1947’s GDP
• Race to the Moon (1961-69): $237 billion/$3,191.1 billion GDP in 1965 = 7.4% of 1965’s GDP
• S&L Crisis (1986-91): $256 billion/$6,742.7 billion GDP in 1988 = 3.8% of 1988’s GDP
• Korean War (1950-53): $454 billion/$1,915.0 billion GDP in 1951 = 23.7% of 1951’s GDP
• The New Deal (1933-36): $500 billion (Est)/$704.2 billion GDP in 1934 = 71% of 1934’s GDP
• Invasion of Iraq (2003-08): $597 billion/$10,989.5 billion GDP in 2005 = 5.4% of 2005’s GDP
• Vietnam War (1965-75): $698 billion/$3,771.9 billion GDP in 1970 = 18.5% of 1970’s GDP
• NASA (1958-2008): $851.2 billion/$5,423.8 billion GDP in 1983 = 15.7% of 1983’s GDP

TOTAL: 153% of annual GDP relative to year of expenditure

• Bailouts (2008): $4,616.5 billion/$11,523.9 billion GDP in 2007 = 40.1% of 2007’s GDP**

So, while the bailouts appear to be more impactful relative to contemporaneous GDP figures than all other expenditures, excepting the New Deal, collectively the nine expenditures listed collectively account for nearly four times the impact of the current bailout figure relative to 2007 GDP.

*All figures are inflation-adjusted according to 2000 US$ according to the U.S. Dept. of Commerce’s Bureau of Economic Analysis (BEA).

**My figures are imperfect because (1) I do not know to which year the figures provided by Jim Bianco have been adjusted, (2) for expenditures lasting several years, I simply selected the GDP for a median year rather than averaging the GDPs for all affected years, (3) the % figure on the 2008 bailouts will be less if a 2008 GDP estimate is used rather than 2007’s GDP, (4) the LA Purchase was excluded for lack of 1803 GDP figures, (5) I am unsure what years the $500 billion (est) figure for the New Deal covers.

A mass of claims to value is not value but merely fictitious capital. The struggle to save these has more to do with trying to save a particular _form_ of capitalism, an unproductive form that has assisted in masking long-run underlying decay even while contributing to it, and by doing so necessarily contributing to its own demise.

Maybe there really was no intention to actually backstop these bad loans, they just wanted the PR

Maybe when Bloomberg wins their freedom of information suit we’ll find out the details of the commitments Paulson and BB have been making with our money.

Why didn’t somebody grill BB about his comment that it would be “counterproductive” for the public to know what they are doing. The sheer arrogance of that reply. OB should call for his resignation on Day 1 and then call for it publicly if he refuses

Besides ‘moral hazard” is a quintessentially conservative trope. It assumes that we have control over our world, knowingly and with full intent make decisions in economic affairs for which we ’should’ bear full responsibility. You put your money in a mutual fund and it collapses— no one should be bailed out -not the fund owners because only their stupidity (not bad luck or outside events -like a war duh?) could have caused them to mismanage their fund so it collapsed–but not you and thousands of other investors either because the same argument holds for you or me. We had the responsibility to investigate our investments and t assess the risk of them. If we chose not to do that fully or couldn’t do it competently-then it’s our fault too. And moral hazard says we have to suffer so next time we will be better investors. Baloney. We have a govt to do things in emergencies we can’t do otherwise. The market can’t solve a panic without allowing for horrible crises that often exact not just economic but political and social costs as well. So gvt acts–and then liberals start calling the action a bail out and claiming that only the rich benefit? It just does not make any sense to me. In a sense we are all in this together–and I for one would rather have more of our money go to taxes knowing that the economy will still function than to have govt stand aside let the “cotton candy economy” collapse and know that we have no money -but taxes are nice and low..

When the U.S. population is taken into account (300 million today, 130 million in 1940), the cost of $4.6 trillion is $15,000 per capita, while World War Two at $3.6 trillion was $27,000 per capita.

So, the largest expense, yes. The largest burden to each American, not really.

Historical comparisons aren’t really bringing it home for me.

So each trillion dollars is $3333.33 for each and every American man, woman and child. Times 4 1/2 would be $15000.00 per each American . Is it still abstract for you? Not me. If each member of your household got a 15K check dontcha think it might perk up the economy? At least perk up your personal economy. Since you are going to be taxed into repaying the Chinese & Saudis for this loan shouldn’t you get to spend it? Instead we are letting the crooks in Washington send it to the crooks in Wall St and next a zillion other sleazy corporate officers will have their hands out too. What are they doing with all this money? The guy who drove Lehman into bankruptcy got $172 million for his bonus after that performance. Seriously, you thought the pirates were operating out of Somalia? The greatest country in the world deserves the greatest corruption of all times. Economics is really simple. Just do the math. Cue piano climax, tada!

Slouching towards Bethlehem, the center cannot hold…