Economic recovery, largely due to large fiscal deficits resulting from government spending, was thwarted when the attempt was made to balance the national budget in 1936, thus bringing on a second collapse in 1937, which continued until the Second World War with its massive defense spending.
The same ideology about the mythical need to balance the budget that kept the world sunk in the Great Depression during the late 1930’s is preventing the Obama Administration and Congress from taking the added measures that would restore prosperity and ultimately fiscal soundness.
First let us understand something very fundamental. Unemployment not only means the loss of goods and services that otherwise would be produced, but it adds greatly to the deficit resulting from unemployment compensation and other social safety net expenditures. So a trillion dollars in added stimulus probably only cost half that amount when corrected for savings in other government expenditures. Work creates prosperity, not idleness!
When we put an additional person to work, let’s say building a highway, that person uses his salary to buy food, for rental, for transportation, for entertainment, thus providing employment for others. (This is called the Multiplier Effect.) A dollar spent directly produces perhaps two and a half dollars in economic stimulus.
Business leaders and economists are focusing their attention on signs of economic improvement. There is a lot of talk of hope for the future and the slowing of the rate of decline, but there are precious little indications of any real improvements. And if improvement does not come soon, the next wave of decline may be upon us as companies further slash expenditures for capital and major improvements. The nation and most of the world are at the cusp of that fateful action at this very moment!
Our recent visit to Europe, our reading about economic decline across the entire Continent, the lack of statistics suggesting improvement in the USA (retails sales fell the second year in a row in the all important month of December!), and from our own observations have all presented a clear cry out for swift and massive government intervention.
A specious protest is “We are bankrupting our children.” No! We bankrupt our children when we don’t ‘prime’ the economy by creating better roads and highways, mass transportation, communications, and improve education so that they will benefit from enhanced infrastructure and skills. The Great Depression was no blessing for future generations, far from it.
As for the enlarged deficit, it can be dealt with in the future as we have in the past, both through inflation and higher taxes during years of relatively full employment. An item purchased in 1937 for $10 would today cost $150! An item bought in 1969 for $10, would today cost $58.50. (Due to the relatively low inflation rate over the last two decades, an item bought in 1989 for $10 would today cost only $17.30.) The point: A trillion dollars of added spending in 2010-2011 will likely only be half as much in real terms in another couple of decades.
Let us not be mislead by those either ignorant or disdainful of modern economics, who continuously spout concepts that are correct during times of nearly full employment but are fallacious during recessions.
Furthermore some who know better will obstruct efforts to restore our economy for political advantage.
We must spend our way out of this recession before it turns worse. If we don’t act now, history may repeat itself, and we will doom a large portion or our population and our children to unspeakable hardship.
Perhaps, but when will our appetite for more spending end? I tend to think that the United States is headed down the path of a failed empire due to military overextension and massive debt…
Well said!
We have dealt with deficits in the past and we will deal with them in the future, after we’ve solved our unemployment and growth problems. It would be a terrible shame if we do not follow up on the measures taken last year and allow the rate of recovery to dwindle.