Paul Krugman dons his pointy hat and shouts from the corner: “we need more stimulus
spending -lots more- to pull out of this economic disaster.” Otherwise, it’ll be 1938 all over again, and, well, we don’t have WWIII to count on to pull us out of our slump, blah, blah, blah.
Yawn. Please stop.
P Krug tries to draw parallels between our current situation and FDR’s situation in 1938.
Now, we weren’t supposed to find ourselves replaying the late 1930s. President Obama’s economists promised not to repeat the mistakes of 1937, when F.D.R. pulled back fiscal stimulus too soon. But by making his program too small and too short-lived, Mr. Obama did just that: the stimulus raised growth while it lasted, but it made only a small dent in unemployment — and now it’s fading out.
And just as some of us feared, the inadequacy of the administration’s initial economic plan has landed it — and the nation — in a political trap. More stimulus is desperately needed, but in the public’s eyes the failure of the initial program to deliver a convincing recovery has discredited government action to create jobs.
Uh, Paul – jobs “created” by the government don’t create any economic growth – they just recycle wealth in horribly inefficient ways. We don’t need the government to “create or save” any more jobs. What we need is for the government to get out of the way, and stop throwing up roadblocks to recovery by shackling businesses with taxes and red tape.
By the way, the notion that WWII pulled us out of our economic slump is a popular myth (especially for fans of Keynesian stimulus). Russ Roberts at Cafe Hayek explains a little about the “economic miracle” that was the war-time period in America:
But it didn’t create an economic boom. That’s the biggest and most dangerous economic myth of all time, the idea that war stimulates the economy. War stimulates the military sector of the economy.
Yes, the measured size of the economy grew between 1940 and 1945. But did the private sector grow? Did consumption boom? Did all that government spending on bombs and tanks and rifles create boom times in the private sector via the Keynesian multiplier?
Ask someone alive during the war what it was like. Was the British economy thriving? Or the German economy? Or the American? No. Economic life was miserable despite the measured growth in the economy. Economic life in wartime is miserable because so much of the economy was devoted to building those tanks and bombs. There weren’t enough resources to create very much private consumption. So the measured economy boomed because it included all that military production.
And yes, unemployment was close to zero. That’s because the government used conscription to put people in the military. It’s easy to get rid of unemployment that way. But it didn’t create economic health. The opposite was true. Times were miserable.
My Dad grew up in the ’40s, and by his accounting, things weren’t all that rosy. A lot of people did without a lot of things.