Vader said:
JSHD, here's what you fail to understand about the role of governmnet spending during WWII and the end of the Great Depression. Remember the government had been spending huge sums of money for the better part of a decade by the time we got into WWII an the enonomy was simply not recovering. Also remember that the vast majority of the government spending during this time is the exact type of spending you are talking about. Buy that I mean spending on things like public works such as building bridges, dams. roads and such. Despite almost a decade of huge taxes to pay for numerious huge infrastructure projects unemployment was still sky high when WWII started. In short, it was a failure up to WWII.
The difference in government spending in WWII and now is that you have a couple of factors playing roles here. On one hand you had millions of men entering into the armed forces, thus being employed and on the other hand you had the government buying products from the PRIVATE SECTOR. Virtually everything the US used or exported to it's allies in WWII were made by private sector companies. From the helmets on the GI's head, to the boots on his feet to the rifle he carried, to the bullets he fired, they were all made by private secotr companies. The government was a customer to the compaines. These companies employed people who actually helped grow the economy further buy buying everything from homes, cars, to day to days items. Also, these people actually paid taxes. The lion's share of government spending now though is going larely to entitlements to people who do not work nor pay taxes. This approach will never help grow the economy.
Now for this recovery to work again like you envision the governmnet would once again have to start buying stuff from companies in numbers that would make these companies start building new factories and hiring new people. I'm sorry but building more new bridges and repaving roads simply would not result in growth anything like what you are talking about, I don't care if we were to rebuild every bridge and repave every road from Maine to California. Only the government buying goods in massive numbers from private sector companies coupled with putting millions in uniform would spark growth like what you are thinking.
Yes the New Deal actually brought unemployment down quite a bit. It was extremely high then because they made a ton of policy errors prior to the New Deal being implemented. Conservatives got antsy about the debt and New Deal programs were cut and we had a double dip after growth had resumed and unemployment had began falling drastically. WW II spending is what finally broke the depression. Government spending and fiscal policy is the main thing that drove down unemployment during this period.
The tea party policies will not work because it is consumer demand that is holding back the economy. It has nothing to with the debt which is actually quite managable due to historically low tax rates. Cutting government spending which mostly goes the non-afluent will crash the economy. The reason is that these people spend all the money they have quickly. It is really what is supporting the private sector right now.
The budget compromise really didn't cut much and I think they will be smart enough not to do that before the economy recovers. Hopefully the Super Congress will not be stupid like UK policy makers.
Our infrastructure is in really bad shape and that is what we need to spend on to get back to full employment. The market is not going to correct itself in this situation. We need to kick start things. I promise that is what ended the great depression.
If you want to learn more about US economic history, below is a link to a good online course that you can download. The professor is far right of me I assure you. This course was made prior to the financial crisis though and the 2000s. Most economists are much more moderate now. :razz:
History of the U.S. Economy in the 20th Century
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