Deficit spending is not an economic cure
Although it has been widely recognized that Keynesian interventionist economic policies implemented by Franklin D. Roosevelt's administration during the Great Depression saved America from prolonged despair, there is another school of thought that believes something quite different. While President Roosevelt did create a number of government programs to improve the economy, they were by no means the economic savior America hoped for.
What Roosevelt was able to do, that Herbert Hoover was not, was build a sense of optimism within the American people by proclaiming that he will do something, regardless of what that "something" may be. Roosevelt's strategy parallels the Obama campaign that ran on the vague, but effective marketing slogan of "Change" in an attempt to excite the public.
Roosevelt's New Deal did put people back to work, but it's important to differentiate productive economic activity from people going to work. In 1932 when Roosevelt was first elected, he inherited an unemployment rate of 23.6 percent. By 1936 once his New Deal policies had been in action for over three years, the unemployment rate declined to 16.9 percent, but by 1938 it grew again to 19 percent.
Thus from 1932 to 1938 after massive deficit spending, Roosevelt was able to reduce the unemployment rate by a total of 4.6 percentage points. Roosevelt continued to spend into his second term, but his spending merely sedated the depression, it did very little to promote business and economic activity.
The principal force generating the extensive reduction in unemployment was World War II, which produced a surge in global demand for American goods.
Like Roosevelt, President Obama believes that excessive deficit spending is the road to rehabilitation. According to the Wall Street Journal in January 2009, the general consensus among economists was that unemployment would rise from 7.2 percent in December 2008 to 8 percent by December 2009. Obama policy advocates claimed that without the stimulus, unemployment levels could reach double digits.
Less than one year later, the United States Bureau of labor recorded the October 2009 unemployment rate as 10.2 percent. Deficit spending doesn't work; it does as a temporary fix, but historically it has never provided the boon that the economy needs to fully revitalize.
Obama, like Roosevelt, believes that doing something is better than doing nothing, but the trick that neither Roosevelt nor Obama thus far has discovered is when to pull the plug on the spending binge. What intervention and deficit spending have proved in the past, and are proving now, is that they provide an addictive sedative, but certainly not a lasting cure.
Sam Draper
Canton
