Friday, July 22, 2011

1937 Redux

Paul Krugman is now displaying the full lack of credibility of his mantra that the “New Deal” spending led to the booming economy of the 50’s and 60’s or that, in fact, it did much of anything, as he screams that we are “doing 1937 all over again.” He points out that current “austerity plans” will throw us back into recession just as it did in 1937, “until World War II finally provided the boost the economy needed.”

Don’t misunderstand: I’m not in sympathy with this “deficit reduction” nonsense in Washington at the moment. I’m fiscally somewhat conservative and would like to see us with a balanced budget, but the timing and method of this is all wrong in many ways, and it should most certainly should not be done under the “pointed gun” of the debt ceiling debate. We should be dealing with something that would attempt to produce jobs.

I’m also not opposed to spending to spending money in recessions to help those who are out of work, and making jobs for them is better than paying them money to do nothing. But I believe we are kidding ourselves to believe that such spending is going to “stimulate” the economy.

To that point, when government spending of the “New Deal” was cut back in 1937 the nation promptly slid back into recession, and Paul Krugman sees no lesson to be learned there.

I still find it somewhat amusing to think that World War II sent us into some sort of spending spree that lasted for twenty years after the war ended. We apparently were so pumped up from the adrenaline from destroying the world that we just could not control ourselves and had to turn that energy into something and the momentum carried us for two decades.

The most destructive five years in the history of the world as the basis for a domestic economic growth just lacks something as a reasonable economic model, somehow. The war did not make us rich or create enormous wealth which needed to be spent. In fact, it left us heavily in debt.

Paul Krugman looks at a world that is mostly rubble and says it didn’t affect us for the next two decades because it had destroyed our market; no one could buy from us. If that were true the world would still be mostly rubble.

I look at a world that is mostly rubble and say that is one hell of a market; nobody has anything, and we are the only ones with manufacturing capacity, so it is an unlimited market of huge demand with no competition.

I think history tells us which viewpoint makes sense, but the war created the booming economy not by “building momentum” but by destroying our competition, literally, and creating demand by turning the existing infrastructure into rubble. I’m not sure that’s something we dare to repeat.

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