The GDP Adjustment

A week-plus ago I posted some data compiled by Bianco Research analyst James Bianco indicating that our $8.4 trillion-and-counting bailout dwarfs just about every huge government project you can think of, combined. Reader domoarrigato argued that re-casting those numbers as a percentage of their contemporaneous GDP might be more illuminating, and then he went ahead and did the math himself. After sending the informatics to our top experts, we are now prepared to publish them in a hopefully easy-on-the-eyes chart. Here goes:

Speaking of bailout graphics, try this more colorful one from Pro Publica–a bubble-chart of post-1970 bailouts, adjusted for 2008 dollars (though not as a percentage of GDP!).

A tangential topic for discussion: What do you all think of the argument that percent-of-GDP is the real way one should ponder stuff like the size of various government programs, or defense spending, or the whole state apparatus itself? I've always thought it extremely helpful for personal context (thanks again, domoarrigato!), and extremely dangerous for the purposes of deciding how to spend.

Here's why: The biggest chunk of GDP, and certainly the most dynamic, is the stuff produced by the private sector. Pegging a public-sector program to a private-sector number basically rewards inefficient non-innovators with the innovators' gains. Put another way, if it cost 4 shekels a year to adequately defend a country with a 100-shekel economy (let's say that 77 of those 100 shekels were produced by the private sector), why on earth should we increase the defense budget to 8 shekels when (as inevitably happens) the profit-seeking privates double their money? I understand that labor and materials can become more expensive in a growing economy, thus adding costs to guvmint operations, but essentially this is about making the booming size of government look rational, just because the private sector is (or was) booming as well. Where am I wrong here?