Nicholas Smallwood

Economist Barry Ritholtz puts together a list of the largest U.S. government expenditures (along with their inflation-adjusted price tags) to date and compares them with the current bailout to show how it is by far the largest expenditure ever by the U.S. government (which I suppose would make the it largest ever expenditure by any government). Of particular resonance is the fact that the current bailout, which Ritholtz prices at this point at $4.6165 trillion dollars has already exceeded U.S. expenditures for World War II, which are calculated to have been $288 billion, or $3.6 trillion in inflation adjusted dollars.

Now, Ritholtz knows much more about economics than I do, and I’m definitely not trying to downplay the significance of the current bailout, which is so large that it seems to devalue the idea of money itself.  But I don’t think he’s doing enough to compare the bailout to historical expenditures.

Ezra Klein at the American Prospect makes two good points about this, by first showing how, unlike most of the other previous expenditures, most bailout dollars are loans which should, to a large degree, get repaid (evenutally; hopefully). Also, and more along the lines of what I’d been thinking about, he makes the point that the U.S. is much, much larger than it was back in mid-twentieth century, and can therefore borrow more for these kinds of expenditures. I’d like to add to that second point and point out that Ritholtz should have compared these different expenditures to the U.S.’s GDP at the different points in time in which they occured.

For example, using a nifty little online tool by Louis D. Johnston and Samuel H. Williamson we can calculate GDPs from different time periods in the U.S. since 1790. The results for each year can be calculated for nominal GDP, real GDP, nominal GDP per capita and real GDP per capita. If we take the real GDP per capita for 1938 ($7,256) and compare it to real GDP per capita for 2007 the ($38,148), we can see that real GDP per capita the year before the bailout was five times what it was before World War II began.

There’s obviously much more to it than my quickie calculation (just think about how much the U.S. economy and world finance has change since then), but there’s also definitely more to it than what Ritholtz lays out, and it’s not adequate to simply compare inflation-adjusted dollar expenditures. I do fully concur with Ritholtz’s final line, however:

Regardless, no matter you calculate it, we are talking about an ungodly amount of money.