Wednesday, 24 September 2008

Is $700B enough?

Just one data point. The RFC, the New Deal era `save the banks (and everyone else)' vehicle, ended up spending fifty billion dollars. From 1933 to 1938, they spent roughly ten billion on bank capital alone. In 2008 dollars fifty billion is roughly (using the Oregon State adjustments to 1935) $780B. So the sizing of the Paulson plan is, on that basis at least, plausible.



Blogger Timothy said...

Surely the number for the adjustment should be money GDP which would be much larger. Inflation only shows price changes; one also needs to account for growth in population and prosperity to measure the comparable effect on the economy. This would suggest a nuber 10-15x as large is needed to have the same effect

9:39 am  
Blogger David Murphy said...

Ah, good point Timothy, although I'm not sure it's 10-15x bigger. Does anyone have a GDP deflator going back to the 30s to properly size this estimate?

10:21 am  
Blogger Timothy said...

Hi David, if you follow this link there is a feature in the top right hand corner that allows you to get the data (although only to 2007)

As you can see the number is smack in the middle of my range. The reason I qualified it with a broad range is that there is considerable debate about the reliability of GDP measures over such a length of time. However I think it proves that this intervention is roughly an order of magnitude smaller than that in 35

10:34 am  
Blogger David Murphy said...

Thank you - most helpful.

11:22 am  

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