The Bailout In Comparison To Other Historical Events
After eight years of the Bush Adminsitration’s hell-bent-for-leather deficit spending on pointless wars and tax-breaks it is with a degree of bemusement that the left now faces a Republican party suddenly obsessed with fiscal restraint. Indeed it seems that the American right can not mange to eek out so much a a week without waxing apocolyptic about the impending catastrophe sure to befall the United States thanks to the deficit expenditures undertaken in the last 12 months or so.
That slightly more than half of those expenditures were approved on George W. Bush’s watch is neither here nor there; sound fiscal policy is sound fiscal policy reguardless of whose name appears on the bottom of the bill.
Even so, the numbers involved in the bailout are enormous ones and critics and proponents alike have found it difficult to convay their sheer enormity. Many have turned to supurlative rich comparisons like that featured in Barry L. Ritholtz’s “Big Picture” blog. Ritholtz writes, “In just about one short year (march 2008 - March 2009), the bailouts managed to spend far in excess nearly every major one time expenditure of the USA, including WW2, the moon shot, the New Deal, Iraq, Viet Nam and Korean wars — COMBINED.”
Now, as Ritholtz’s graphic (source: Jess Bachman at Wallstats) illustrates, the bailout has been expensive but comparing it to the combined cost of WWII, the Moon Shot, the New Deal, Iraq, Vietnam, and Korea is more than a bit of a stretch. Even ignoring the historical context of these events, the numbers simply don’t stack up.
A closer examination of Ritholtz’s Wallstats-graphic reveals the conspicuous absense of two fairly major American one time expenditures: the first and second world wars. Indeed, by Ritholtz’s own admission (in a previous blog post), WWII alone cost the United States $3.6 Trillion, an amount Ritholtz estimated to be about $979 Billion less than the cost of the bailouts back in November. Adding the combined cost of the New Deal and the Iraq War to the price-tag for the second world war more than makes up the difference as of November leaving the entire Cold War Era and the whole of the 19th Century besides to cover the rest. Given that the US managed to tack on $5 Trillion in debt (to say nothing of expenditures) during the Cold War alone, Ritholtz’s comparison falls very very flat. [Author's Note: Mr Ritholtz indicates that this is a preliminary version of the graphic in question and that WWII will be added in at a later date]
Misleading or otherwise, however, Ritholtz’s graphic is a good starting place from which to visualize the cost of the bailout and the cost of other significant outlays in American history. Fudging the figures a touch, the Second World War may be compared to the combined cost of the Moon Shot, the S&L Crisis, the Korean War, the Marshall Plan, the Iraq War, the Lousiana Purchase, the Vietnam War, and the New Deal… combined. In other words, adding WWII to the left side of the graphic doubles the size of “other expenditures.” WWI is a little more difficult to assess but we can spit-ball it at about 318,000,000,000 inflation adjusted dollars – roughly analogous to another Marshall Plan and another Lousiana Purchase.
The mental image you, the reader, should have now is of two roughly equal stacks of blocks with the one on the right marginally larger that that on the left. All of this before adding in events which are much more difficult to quantify yet obviously vast in scope and scale: the Civil War, the Cold War, the American Revolution, the War of 1812, and the long-term-consequences of the US abandonment of the gold standard in the 1970s.
This is not to say that the bailout has not been expensive nor to suggest that it does not set a concerning fiscal precedent; it absolutely is and it absolutely does and Mr Ritholtz is quite justified in his alarm. But if we are to address these questions and face these issues with any amount of seriousness and rigor we must start by telling the truth about our present and our past. No matter how much we have borrowed, we can always afford to do that.