It's All A Little Bit Of History Repating...

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Courtesy Heritage Foundation

Comments

[Derek]

a few questions

1, How is ww2 spending NOT an example of federal spending? Am I supposed to believe that the government building tanks is somehow vastly different than them building bridges?

2, how does that graph not show that the new deal helped unemployment? not only that but I like how they said the new deal part 2 started in 37. That isn't true. They cut back on the new deal in 37, then in 38 unemployment skyrocketed then they brought it back.

http://history.sandiego.edu/GEN/20th/1930s/newdeal.html

"Recession began Aug. 1937, after FDR cut WPA and other programs to reduce government deficit spending"

"Congress passed $5 billion emergency bill April 1938"

Last question. What is up with conservatives and revisionist history of the New Deal?

[BipolarNation.com]

Derek,

The government didn't really "build" tanks during World War II. They paid companies to do that.

Anyways, as you can see, unemployment didn't shrink back down to under 20% until World War 2, suggesting to me that while unemployment shrank, it took the war to get us back to normal levels.

If you think FDR is responsible for bringing down unemployment levels during the 30's with his New Deal, wouldn't it follow that Ronald Reagan's tax-shrinking policies helped unemployment shrink during the 1980's?

I mean, while we're crediting Presidents for being solely responsible for this kind of thing, it's interesting to note. Unemployment shrank from 7.5% when Reagan was elected to 5.3% when he left office.

source: http://www.miseryindex.us/urbymonth.asp

We could realistically look at that data and say "wow, that Depression lasted way longer than it needed to, and instead of aggressive domestic spending policies bringing us out of it, the war seemed to do it."

[Derek]

"The government didn't really "build" tanks during World War II. They paid companies to do that."

Just like you can pay a construction company to build a turnpike. Doesn't really matter either way the government borrowed money to put into the economy. You can't say one version of this works and the other doesn't. It doesn't make logical sense.

"wouldn't it follow that Ronald Reagan's tax-shrinking policies helped unemployment shrink during the 1980's"

two different situations. Reagan's recession was caused by the federal reserve ON PURPOSE. There was too much inflation and it was hampering economic growth. (our situation right now is more like the great depression, where there is too much deflation). The federal reserve raised interest rates in order to fight inflation and this sent the economy into a severe but necessary recession. Like I said, two VERY different situations.

forgive me for bringing in wikipedia but:
http://en.wikipedia.org/wiki/Early_1980s_recession

"Determined to wring inflation out of the economy, Federal Reserve chairman Paul Volcker slowed the rate of growth of the money supply and raised interest rates. The federal funds rate, which was about 11% in 1979, rose to 20% by June 1981. The prime interest rate, at the time a highly important economic measure, eventually reached 21.5% in June 1982."

"The Federal Reserve's extremely tight monetary policy intentionally plunged the American economy into a deep recession"

Reagan's tax revolution allowed the the economic boom that happened after the Fed was done squeezing the inflation out of the economy to be so large though.
But it was risky growth. Using tax incentives to favor investment works only up to a certain point. After that you pretty much get fake money. You get an economy that's built off betting on the economy. It's good because a good idea can be exploited into something major with all the capital flying around (rise of the internet) but it's bad because you can end up with a lot of malinvestment (savings and loans crisis of the late 80's, subprime crisis of now) that threatens financial institutions. It's an interesting tradeoff that hopefully regulation can help work better in our favor. Less anxiety about playing with markets is probably what helped Clinton manage the economy better than both bush's or reagan.

[Derek]

I'd also like to emphasize that fed rate.

it was around 20% during the 80's recession. Our current fed rate is set at .25%. The situations we are in are polar opposites. The former was set to combat inflation, the latter to combat deflation.

The good news for conservatives is that tax cuts can help fight off deflation. So they are definitely something conservatives can push for right now. The bad news is that these taxcuts work for the same theoretical reasons that government spending does, but government spending gives you more bang for your buck. So you'd be arguing against results simply for the sake of political principle. Admirable, but not too convincing to anyone that doesn't follow conservative principles.

[DavidB]

You don't have to be a math wiz to see that unemployement dropped from 35% to 20% before WWII from this graph.

This is a silly article and point.