Conservatives have taken to saying that FDR’s New Deal didn’t work. Nothing can be further from the truth. It is a lie. It is the worst kind of lie, designed to hamper our recovery today. Conservatives love to say that government spending didn’t work in the 1930’s and it isn’t going to work today. Well, let’s look at the evidence.
Since some commentors thought my post was a little thin, the following is from an earlier post:
In my mind, we need to focus on one (the economy) and then the other (deficits). We need to create jobs, high-quality jobs which will put money in the pockets of average Americans. Once Americans began to feel that they have a steady income and that their jobs are safe, they will begin to spend money. Currently, our economy suffers from too much supply and not enough demand. Once Americans began to spend money that will help decrease supply and spur business to begin to increase production again.
Once the economy is fixed, we must then begin to figure out how to balance the budget and how to pay down our debt. President Herbert Hoover, in the face of an economic crisis, decided to balance the budget and to decrease government spending. We all know that did not work out so well for him (or for our grandparents).
Dean Baker from the Center for Economic Policy Research said it much better than I could –
The moral to this story is that the economy must take priority, not only because the state of the economy is what most directly determines people’s well-being, but also because the state of the economy will be the most important determinant of the deficit.
The experience of the 1990s provides an example of exactly this sort of story. In January of 1994 the Congressional Budget Office projected that the deficit in 1999 would be $204 billion or 2.4 percent of GDP. This projection incorporated the impact of President Clinton’s tax increase and spending cuts.
It turned out that there was a surplus of $125 billion in 1999, or 1.4 percent of GDP. This shift from deficit to surplus of 3.8 percentage points of GDP (equivalent to $540 billion in 2009) was not caused by further spending cuts or tax increases, it was caused by the strong economic growth of the period.
There is no guarantee that President Obama’s policies will be successful in restoring strong growth, but they are clearly a step in the right direction. If we have strong growth, then our deficits will be manageable. If the economy remains weak, the deficit will remain a serious burden no matter how much we raise taxes or cut spending.
