And This Time We Didn't Even Get New Orleans!

How big is the $8.5 trillion bailout? According to James Bianco of the Chicago-based analysis firm Bianco Research, when you adjust previous mammoth Washington expenditures for inflation, the 2008 bailout dwarfs them all. Combined.

• Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3 billion
• Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost: $217 billion
• Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost: $237 billion
• S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion
• Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion
• The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost: $500 billion (Est)
• Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion
• Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion
• NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion

TOTAL: $3.92 trillion

Hat tip: Fred Unger.

UPDATE/EXPLAINER: Re: this comment, by quoting Bianco's numbers I am not claiming that each one of them is accurate. Also, if you follow that first link, you will get to this Nov. 30 chart, which breaks down the $8.5 trillion by "maximum commitment" and "tapped so far." A further, link-rich breakdown of the bailout so far can be found over at the Reason Foundation's Out of Control blog.   

Comments

[meeko]

So you are actually buying the USA from yourself or something?
Or buying the USA from the government?
Whatever way is true, it's funny as hell ( at least for someone who is not from US and is NOT throwing money into the abyss )

[P Brooks]

"I'm telling you; this abyss will NEVER be worth less than it is today! Make an offer, before you miss out."

[domoarrigato]

Matt, am I to understand that the figures presented here supercede Reason's view of what the war cost from earlier this year?

I would like to think that this doesn't represent a self serving willingness to spin the same facts to make a two different points, but I can't see how to escape that conclusion.

When reason wants to make the war look expensive, it's a trillion dollars, but when Reason wants to make the bailout look expensive by comparison to the Iraq war, suddenly the wars cost is only 1/2 what was claimed.

[Mister DNA]

If you love America, you throw money in the hole.

[Fred Unger]

Matt,

Don't forget to add in the cost of World War 2: original cost $288 billion, inflation adjusted cost $3.6 trillion according to Bianco.

Even adding in that most expensive endeavor in our history to all those other expenditures you listed, the total still comes out under the amount thrown at the financial system since Labor Day 2008 ($5.6 trillion in Federal Reserve programs, $1.5 trillion in loan guarantees by the Federal Deposit Insurance Corporation, $1.1 trillion in Treasury Department programs, plus more)

One has to wonder has to wonder what the due diligence processes looked like for all these transactions and what bank regulators would do if they found a private bank making transactions similar to those the feds are making these days.

[Jesse Walker]

domo: I don't know how Bianco's figures compare to De Rugy's. But in one way, at least, it isn't an apples-to-apples comparison: De Rugy's total also includes the war in Afghanistan.

[domoarrigato]

Fred Unger,

You, like Reasons editorial staff have chosen to conflate Fed loan guarantees with spending on the war. As if a credit line at the Fed is the same as purchasing war materiel and then systematically destorying it in the desert.

This is a serious misrepresentation of the what the Fed's recent massive expansion of balance sheet represents, and the choice to portray the facts in this manner displace more serious debate on the issue. The situation at the Fed and with the high probability of a deflationary spiral is alarming enough in it's own right and deserves more accurate treatment from a magazine that is usually more market savvy than this.

[P Brooks]

"There's no TIME to read the fine print; ya gotta lend, lend, lend!"

[Tulpa]

One has to wonder has to wonder what the due diligence processes looked like for all these transactions

An intricately woven tapestry of shit is my guess.

[domoarrigato]

Jesse Walker,

fair point, but it doesn't total the ~450 billion balance (using non-inflation adjusted figures.)

[domoarrigato]

the second paragraph @ 10:02 should have read:

"This is a serious misrepresentation of the what the Fed's recent massive expansion of balance sheet represents, and the choice to portray the facts in this manner displace more serious debate on the issue. The situation at the Fed and the high probability of a deflationary spiral is alarming enough in it's own right and deserves more accurate treatment from a magazine that is usually more market savvy than this."

Apologies to my 5th grade english teacher...

[Lost_In_Translation]

I'd like to point out that these large numbers are still speculative, promises rather than printed cash. The overall cost could still come out a great deal less than what is being promised, especially if the government doesn't want to lead to runaway inflation. America will never be more valuable than the percieved value of its productivity and stability.

[Alan Vanneman]

I totally agree with that domo guy. Seriously, Reason dudes, you're getting a bit squawky.

[John Watson]

No doubt aboout it, this one is going to be big!

jess
http://www.privacy.de.tc

[Fred Unger]

domoarrigato,

Don't shoot the messenger man.

As I mentioned to Matt, I am just reporting on a presentation made by Jim Bianco of Bianco Research at an invitation only meeting that a friend of mine attended at the Chicago Federal Reserve. Apparently the Chicago Fed considers these to be worthwhile numbers to consider and compare.

At least many of the other investments on that list, even the wars, have been promoted in the past on economic grounds. Surely the Louisiana Purchase qualifies as a valid comparison,

While I agree with you that at least some of these investments, debts and loan guarantees will be repaid and perhaps even profitable, it is highly doubtful they all will.

Bottom line, the taxpayer is on the hook for some very questionable investments that would otherwise render many of the institutions being subsidized insolvent under current mark to market accounting rules.

For what it is worth, Jim Rogers, who co-founded the Quantum Fund with George Soros, has been quoted recently as saying that most large American banks, that we are now pouring tax dollars into and backing with the full faith and credit of the US Government, are bankrupt:

"Without giving specific names, most of the significant American banks, the larger banks, are bankrupt, totally bankrupt," said Rogers, who is now a private investor.

"What is outrageous economically and is outrageous morally is that normally in times like this, people who are competent and who saw it coming and who kept their powder dry go and take over the assets from the incompetent," he said. "What's happening this time is that the government is taking the assets from the competent people and giving them to the incompetent people and saying, now you can compete with the competent people. It is horrible economics."

http://www.reuters.com/article/InvestmentOutlook09/idUSTRE4BA5CO20081211

[Comedy=Tragedy+Time]

Besides, the bailout money needs to be adjusted by the inflation it will cause. So it's really not that much.

[domoarrigato]

Just ran some quick figures. I took the numbers presented above, and used CPI data to attempt to back out the approximate year that the author was using to inflate the dollar amounts. I then compared that to GDP at the time. I was unable to find an estimate of GDP prior to 1929 on short notice, so the following does not include the New Deal or the Louisiana purchase.

In short, using 8 trillion as the bailout cost (which I dispute) it represents ~58% of current GDP. The programs listed in the article (less the New Deal and LP) also represents a total of about 58% share of the GDP's at their respective times.

Why is GDP a better measure to use? I'm aware that this point is up for dispute, but my purpose is to highlight how dramatically different conclusions can be drawn depending on how you represent the figures.

If, as most people expect, losses on the 8 trillion represent a fraction of that sum, then obviously the problem becomes even smaller. Assuming even a catastrophic 20% loss on capital, the taxpayer would be on the hook for a "measly" 12% or so of GDP. That is less than the Vietnam war and the Korean War and just more than NASA by my crude figures.

[Gilbert Martin]

"How big is the $8.5 trillion bailout?"

Not nearly as big as the pre-existing and ongoing bailout of the old folks as represented by the net present value of the unfunded liabilities for social security and medicare.

[domoarrigato]

correction to the above. I see that my disinclusion of the New Deal was in error - by itself that program represented 57% of GDP in 1933.

[SugarFree]

Libertarians opposed to corporate bailouts? Wha?

Bookmarks this thread folks, for the next time a dumbass comes a knockin' with the lame "corpotarian" line.

[domoarrigato]

Fred,

A couple of points in response:

As I mentioned to Matt, I am just reporting on a presentation made by Jim Bianco of Bianco Research at an invitation only meeting that a friend of mine attended at the Chicago Federal Reserve. Apparently the Chicago Fed considers these to be worthwhile numbers to consider and compare.

Fair enough. I have no idea how the Fed intends to view these figures behind closed doors. The fact that they were presented with them doesn't really speak to that, though it does show some inference of credibility to the presenter.

At least many of the other investments on that list, even the wars, have been promoted in the past on economic grounds. Surely the Louisiana Purchase qualifies as a valid comparison

Surely more so than military spending, the product of which is essentially all destroyed over time. Thanks for making this point - it would be interesting to try and calculate the overall effect of having the property gained in the LP has had on the GDP of the US over time. I suppose it would seem a rather good investment under that analysis.

While I agree with you that at least some of these investments, debts and loan guarantees will be repaid and perhaps even profitable, it is highly doubtful they all will.

Bottom line, the taxpayer is on the hook for some very questionable investments that would otherwise render many of the institutions being subsidized insolvent under current mark to market accounting rules.

I agree wholeheartedly with these sentiments. It's unfortunate that the original article failed to portray this view, and made no attempt to qualify the 8 Trillion Dollar Figure as you clearly do.

[domoarrigato]

Plugged in WW2 - 145% of GDP in 1943.

[Matt Welch]

domoarrigato -- Any chance that you can show your math in such a way that I can tack it on to the end of the post?

[domoarrigato]

Matt, you are welcome to my data table which should be arriving shortly. The math involved is easy division of the claimed Nominal price tag into the Nominal GDP figures for that year. Using Nominal GDP adjusts for inflation over time, and the GDP figures can be verified at the BEA

[Rob]

As the poster above said - this really should be expressed as a percentage of GDP. It's much less meaningful otherwise.

[robc]

Rob,

As the poster above said - this really should be expressed as a percentage of GDP. It's much less meaningful otherwise.

While I see some value to looking at it that way. I dont think a boondoggle is any less so just because it is a smaller percent of GDP. If I throw $1000 in a fire it hurts me more than it hurts Warren Buffett, but that doesnt make him doing it any less stupid.

[P Brooks]

If I throw $1000 in a fire it hurts me more than it hurts Warren Buffett, but that doesnt make him doing it any less stupid.

And if either one of you takes a thousand bucks from me, and throws it into the fire....

[domoarrigato]

I dont think a boondoggle is any less so just because it is a smaller percent of GDP.

presumably your throwing $10 in the fire would hurt you less than $1000. For my part, throwing away $100 today is less than $100 15 years ago when I was a poor college student and that sum was practically my monthly budget. On principle, it's no less insulting whether the government chooses to waste large or small sums of money, but the figure does matter to my wallet.

[Lamar]

How are "race to the moon" and NASA not the same thing?

[domoarrigato]

Marshall Plan Cost ($bn) - 12.7 , Year - 1948 , Then GDP ($bn) - 269.2 , %age of GDP - 4.7%
Moon Race Cost ($bn) - 36.4 , Year - 1966 , Then GDP ($bn) - 787.8 , %age of GDP - 4.6%
S&L Crisis Cost ($bn) - 153 , Year - 1989 , Then GDP ($bn) - 5484.4 , %age of GDP - 2.8%
World War II Cost ($bn) - 288 , Year - 1943 , Then GDP ($bn) - 198.6 , %age of GDP - 145.0%
Korean War Cost ($bn) - 54 , Year - 1951 , Then GDP ($bn) - 339.3 , %age of GDP - 15.9%
The New Deal Cost ($bn) - 32 , Year - 1933 , Then GDP ($bn) - 56.4 , %age of GDP - 56.7%
Iraq Invasion Cost ($bn) - 551 , Year - 2005 , Then GDP ($bn) - 12421.9 , %age of GDP - 4.4%
Vietnam War Cost ($bn) - 111 , Year - 1967 , Then GDP ($bn) - 832.6 , %age of GDP - 13.3%
NASA Cost ($bn) - 416.7 , Year - 1984 , Then GDP ($bn) - 3933.2 , %age of GDP - 10.6%

Total 258.2% of the GDP indexed to their respective times.

Bailout/2007 GDP Cost ($bn) - 8500 , Year - 2008 , Then GDP ($bn) - 13807.5 , %age of GDP - 61.6%
Bailout 20% loss Cost ($bn) - 1700 , Year - 2008 , Then GDP ($bn) - 13807.5 , %age of GDP - 12.3%

It seems there might be some disconnect in my figures being received by Matt - so I figured I'd post them myself in case there is anyone who is still interested in this thread: before it gets too late in the day. Clearly this way of looking at it isn't nearly as eye-popping as the other way, so I suspect it will get a lot less attention.

[P Brooks]

"Eyepoppingness" aside, the idea that the government can allocate resources more wisely or efficiently than private actors is absurd.

[robc]

domo,

Only slightly less eye-popping. WW2 is much bigger than the bailout, but considering we were bailing out the world, not surprising.

Only the New Deal compares to the "total" cost of the bailout. Even the "20%" bailout is only lower than Korea/Vietnam.

We are looking at 6 to 30 times greater than the S&L crisis. For something totally avoidable just by saying "No".

[domoarrigato]

Despite the obvious conclusion that taking a (huge) 20% hit on the bailout is less expensive than the Vietnam war - I think there are several other inetresting things to note.

1) The Iraq War is cheap! compared to Vietnam, Korea, and even less than the Moon Race! Not that it makes it ok, buuut - at least we got voting Iraqi's for our loss in blood and treasure. The 4.6% of GDP spent on the moon race got us some nice pictures, some rocks, zippers, and a bunch of conspiracy theories.

2) WWII completely dominates the accounting. By FAR, this was the most expensive undertaking this country has ever embarked on. Your "gut feeling" should support this conclusion. After all, the fact that there was rationing, a war effort, and widespread deprivation in order to meet the demands of materiel manufacture is evidence of how much of production was directed at the war. It certainly puts things in perspective.

3) The New Deal. Largely this represents fiscal stimulus in the form of public works and other means. Interesting to me that the percentage is so similar to the total bailout cost. It almost makes me wonder if this is the calculation that was done behind doors at the Treasury and Fed when they sized their request. In my opinion, the New Deal was much less effective than it might have been, since it purchased plenty of useless crap. A more free-market solution would provide more stimulus/$.

4) The trend in the cost of overseas interventionism is down. This is reason to be optimistic in way as I conclude it represents a lower willingness on the part of the citizens to put up with it. Still, I would prefer the number to be 0.

[domoarrigato]

Only slightly less eye-popping. WW2 is much bigger than the bailout, but considering we were bailing out the world, not surprising.

Agreed about WWII. I think this does a pretty good job of flipping the hysteria on it's head. Instead of 8.5 tn being bigger than every undertaking ever. Combined! It's less than about 1/2 of the list, and smaller then some far less futile undertakings (Vietnam?)

You are totally right comparing it to S&L crisis. In fact, of the whole list, it's really the only apt comparison to be made to the bailout number.

Whether or not the cost is avoidable by refusing to act is another argument entirely. I think not, though I am mindful that the manner of the bailout matters a great deal - and there is plenty to criticise on that front.

[Hazel Meade]

at least we got voting Iraqi's for our loss in blood and treasure. The 4.6% of GDP spent on the moon race got us some nice pictures, some rocks, zippers, and a bunch of conspiracy theories.

Actually, er, I kinda prefer the rocks, zippers, pictures, and conspiracy theories.

Culturally speaking, the space program has been a gold mine. The conspiracy theories have been an endless source of entertainment, and without the shuttle, we wouldn't have that simpsons episode where Homen becomes an astronaut, or the phrase "And I for one welcome our new ant overlords."

[domoarrigato]

Matt,

I have to say - I'm a bit disappointed that you wouldn't publish my figures, or address the disparity between the conclusions that can be drawn from them. Perhaps it was just a busy day, but really this topic deserves fair rational discussion as much as anything else that is going on in the world right now. I would have thought Reason was up to the task.

[TallDave]

Hey, some of us didn't WANT New Orleans. Then or now.

[Matt Welch]

domo -- read yer damned mail! I was asking if you could send that as an attachment, since my html chart-making skills using our service isn't up to snuff. At any rate, even if you don't, I will labor to do it myself, and make this a separate blog post.

[domoarrigato]

Matt,

I didn't receive any mail - no doubt the server squirrels - I'm happy to attach it. you should receive shortly.