Barry Ritholtz runs the numbers and finds that the financial crisis is now the single priciest event in American history. The total cost, if you include all outlays and liabilities and guarantees and loans, is $4.6 trillion. World War II, by contrast, cost $3.6 trillion if you adjust for inflation. It's a powerful statistic. That said, it's not really apples-to-apples. No one expects the crisis to cost $4.6 trillion in federal spending. A lot of the money there is in the form of loans that most experts expect will be paid back, at least in large part. And much of what Ritholtz is calculating are liabilities, wherein the government has promised to absorb a certain percentage of losses in the event that they happen. But the point of those policies is to prevent those losses from happening, and it's quite likely that the government won't, for instance, have to pay $300 billion as Citibank gets wrecked. That's not to say the bailout won't be very expensive when all is said and done. But at the end of the day, if the damage is so great that all of the liabilities are engaged and none of the companies survive to pay back their loans, then we've got bigger problems than government spending. The point of all these policies is to head off that day. The weird paradox of the bailout is that the better it works the cheaper it is. But in order to work, the sums involved have to be huge, because investors have to be convinced that companies like Citigroup will not collapse. And as a final note, the US government can spend a lot more money now because it's simply much bigger now. Indeed, economically, it's the biggest, most powerful entity in the world. Compared to its pre-World War II self, it's a giant. And so it can borrow huge sums of money. The conceivable scale of its action is far larger, but it is far larger. Indeed, you can be sure that if we fought World War II today, we would not spend a mere $3.6 trillion.
