If we CAN learn from History, we ought to listen to Krugman…
Here’s a clip:
The story of 1937, of F.D.R.’s disastrous decision to heed those who said that it was time to slash the deficit, is well known. What’s less well known is the extent to which the public drew the wrong conclusions from the recession that followed: far from calling for a resumption of New Deal programs, voters lost faith in fiscal expansion.
Consider Gallup polling from March 1938. Asked whether government spending should be increased to fight the slump, 63 percent of those polled said no. Asked whether it would be better to increase spending or to cut business taxes, only 15 percent favored spending; 63 percent favored tax cuts. And the 1938 election was a disaster for the Democrats, who lost 70 seats in the House and seven in the Senate.
And then came World War II and the miracle occurred.
From an economic point of view World War II was, above all, a burst of deficit-financed government spending, on a scale that would never have been approved otherwise. Over the course of the war the federal government borrowed an amount equal to roughly twice the value of G.D.P. in 1940 — the equivalent of roughly $30 trillion today.
Had anyone proposed spending even a fraction that much before the war, people would have said the same things they’re saying today. They would have warned about crushing debt and runaway inflation. They would also have said, rightly, that the Depression was in large part caused by excess debt — and then have declared that it was impossible to fix this problem by issuing even more debt.
But guess what? Deficit spending created an economic boom — and the boom laid the foundation for long-run prosperity.
We don’t have a similar miracle waiting in the wings for us. In fact, our military is more than overspent and tired out after the decade of Iraq and Afghanistan. And we are broke!
The odds of the Repiglicans, who will be voted in to Congress by short-sighted middle- and lower-class folks, increasing our expenditures on jobs and government-financed recovery are minimal.
But it turns out that politicians and economists alike have spent decades unlearning the lessons of the 1930s, and are determined to repeat all the old mistakes. And it’s slightly sickening to realize that the big winners in the midterm elections are likely to be the very people who first got us into this mess, then did everything in their power to block action to get us out.
But always remember: this slump can be cured. All it will take is a little bit of intellectual clarity, and a lot of political will. Here’s hoping we find those virtues in the not too distant future.
And here’s hoping it doesn’t take a World War.
- Krugman: This Is 1938 All Over Again, And We Need Something Like WWII To Save Us (businessinsider.com)
- “Paul Krugman: 1938 in 2010” and related posts (economistsview.typepad.com)
Posted on September 6, 2010, in campaign, Congress, Economics, editorial, Finance, history, Military, Opinion, Politics, President Obama, Press, Warning, Word from Bill and tagged Economic, Federal government of the United States, history, New Deal, New York Times, Paul Krugman, recession, World War II. Bookmark the permalink. Comments Off on If we CAN learn from History, we ought to listen to Krugman….