Sunday, February 15, 2009

Republicans for massive stimulus

Republicans have been pushing hard the myth that the New Deal was a failure, even as almost all economist not on the GOP payroll point out that now is not the time to be timid, usually pointing to Japan's lost decade of the 1990s.

Perhaps most credible to Republicans is the case being made by former Reagan advisor and Bush I Treasury economist Bruce Bartlett.

Writing in Forbes, Bartlett argues that the real lesson of the New Deal was that FDR and Congress didn't spend enough to stimulate the economy.

After a lengthy analysis of the New Deal policies and deficient, Bartlett concludes,
Republicans claim that today's fiscal stimulus is doomed to fail because the deficits of the 1930s didn't end the Great Depression. "We know for sure the big spending programs of the New Deal did not work," Senate Republican Leader Mitch McConnell asserted on Feb. 6.

The implication seems to be that the economy would have recovered faster from the Great Depression if the budget had been balanced. But as my calculations demonstrate, the true failure of the New Deal was that deficits were much too small, not too large.

Ironically, Republicans implicitly acknowledge the truth of this when they argue that "the only thing that brought us out of the depression was World War II," as Sen. John Ensign explained on Feb. 7.

Yet Republicans conveniently overlook the fact that it was massively larger budget deficits--which averaged close to 20% of GDP from 1941 to 1945--that were the principal contribution of the war to economic recovery.

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