According to Dominick T. Armentano, professor emeritus in economics at the University of Hartford, the federal government cannot spend us out of our economic quagmire.
The experience in the 1930s is instructive. Even though federal government spending increased from $9.8 billion in 1934 to $14.2 billion in 1940, the unemployment rate in 1940 was still a staggering 14.6%. A 45% increase in New Deal spending in six years did not end the Depression.Mr. Armentano is not alone. More than 200 economists from a countless number of top-flight universities signed an open letter countering Obama's claims that big government spending will work.
More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s. More government spending did not solve Japan’s “lost decade” in the 1990s.This is not me speaking. This comes from a bevy of experts far more intelligent than I (heck, I have tennis shoes smarter than I am).
It is time to put aside grandiose plans of some newfangled New Deal and do what works. Cut taxes, cut regulations, cut government waste and abuse. Let the American people spend their money on what they deem essential and growth of business and the economy will quickly follow.
It worked in the 1960s, 80s, 90s, and the 2000s.
Massive government spending has never helped fix an ailing economy.
11 comments:
I live in Alaska. Trying to get people in the streets will not do much good. Maybe make a couple more Paline jokes. But we need boots on the ground. We need people in the streets. "JUST SAY NO!!!"
Looks like we are going to politely sit back and watch our country go bankrupt. I've been writing letters. But I have a feeling we need to do more. Like the President says we need to go "BIG"
The past 17 days looks like a huge train wreck, it's awful but you can't look away. But we and our children are going to live with this one for years to come. Looks like the only thing they have left out of the bill is a Birlitz course in Chinese
It's not clear to me, then, what did end the Depression. Did FDR institute a program of massive tax cuts, deregulation and earmark-restriction?
As I understand, Burro, it was WWII that created a massive number of jobs that played a larger role in ending the Great Depression.
http://www.econlib.org/library/Enc/GreatDepression.html
"It is commonly argued that World War II provided the stimulus that brought the American economy out of the Great Depression. The number of unemployed workers declined by 7,050,000 between 1940 and 1943..."
Where are the Nazi's when you need them?
Ah. In other words, a massive government spending program. Got it.
Good, as long as we are clear on this.
I guess where I'm confused, then, is on the whole "Massive government spending has never helped fix an ailing economy" thing. But as I've said, economics isn't my strong suit.
I suppose, Burro, you are semantically correct. There was huge government investment required to execute WWII. The key thing to remember here is that the spending was focused not on projects and programs and new agencies, but on a direct capital injection into industry. And, the money was tied directly to demand for a product. The money followed a more direct path to companies, that, in turn, had to engage in immediate massive hiring to meet the demand. Demand increases, supply must follow. Investors, knowing that this huge "order" was placed, again developed confidence in the economy enough to stimulate the stock markets. When the war was over, consumer and investor confidence was at such a high level that the positive economic activity continued.
In contrast, the New Deal spending as the Obama plan do not inject funds as directly. Most of the funds get passed through one or more agencies before it can be spent on capital stimulus. For example, money goes from the feds to the states who then dole it out to the towns who then dole it out to workers. Each step requires time and overhead that affect the stimulative ability of the funds.
More to the point on the Obama plan, the money is being directed not a a single industry or cause, but to myriad hand-picked causes and pet projects. The effect on the overall economy is diminished through these filters. Money given to agencies engaging in AIDS research, STD prevention, electronic medical records, etc., will take longer to get into the mainstream economy. Will you or your friends benefit from the jobs required to scan medical records? Likely not.
Obama claims the electronic medical records will save insurance companies money. But how long will it take for the insurance companies to save enough money to lower their rates? Who knows? Years?
Much of the spending in the "stimulus" package follows this same paradigm. How long will it take funds given to electronic mini-cars (golf carts) to reach the overall economy?
The longer it takes for the funds to reach "Main Street," the longer it takes for the economy to "jump start," which keeps the investors from putting money into Wall Street, slowing investment into areas where you might be more likely to benefit. (I don't know what you do for a living, so I don't have an example.)
Direct tax rate cuts to all citizens puts more money in the hands of all people. Reduction in captial gains tax rates gives all investors more incentive to invest. Reduction in business taxes gives all business more money to operate, maintain, and expand.
The money hits "Main Street" faster with fewer filters and none of the politics involved in Obama's plan.
One-time stimulus payments are not tax cuts; and when limited to the chosen few, will not have the overall stimulative effect that tax rate cuts for all tax payers would have.
I don't know much about economics, but much of this is common sense, knowing how taxation stifles economic growth, and understanding business.
In short, federal funds going to build tanks will have a more stimulative effect on the economy than for a butterfly "eco-park" in Boynton Beach, Florida or a dog park in Chula Vista, CA.
http://online.wsj.com/article/SB123369271403544637.html
If only the people who'd been running the show for the last eight years had shown a willingness to cut taxes or fight wars, this whole mess could have been avoided.
My dog strongly supports the Chula Vista park project, by the way.
If you want my take on the current financial mess, I have a exhilarating three-part series elsewhere in my blog
http://redboyinabluestate.blogspot.com/2008/09/whos-fault-is-this-financial-mess-yours.html
It has nothing to do with those pesky "tax cuts for the wealthy" and all to do with Democrats forcing lenders to make bad loans.
ps. I'll call the Chula Vista parks and recreation department and make sure the park gets done. I am paying for part of it; they'll listen to me.....
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