A Failure of Nerve

Already the proposed stimulus package points to a colossal failure of nerve on the part of the Democratic messiah. Instead of boldly leading us through the Red Sea of an economic depression our anointed one is barely immersing his toe in the waters.
Contrary to what most economists purport, we do know what it takes to pull an economy out of a depression. When FDR took office in 1933 he pushed through a series of programs which for four consecutive years kept the budget in a deficit that was 5-6% of each year’s GDP. It did ameliorate horrendous conditions, bringing unemployment down from 25% to 12%, but, everyone agrees, it did not end the Great Depression; it did not lead us to the promised land of prosperity and growth.
No, it took the economic stimulus of World War II to pull us out of the Great Depression. But what about the war did the trick? Certainly not the actual killing of people, unless you think that stimulating the funeral industry provides that needed stimulus. It was putting every able-bodied person to work at high wages. Unions agreed to a no-strike clause in exchange for high wages, overtime pay, and generous pension benefits. And when my father, at 18, put on his uniform and shipped out to England in the late fall of 1943 to prepare for the Normandy invasion, he did not do that without pay! No, he and every GI received a regular paycheck as did his sister, my aunt, who was a Navy nurse.
That deficit spending for the years of 1942, 43, 44, and 45 was 25 – 30% of GDP for each of those years. At war’s end, our total national debt was 110% of the 1946 GDP! It fueled prosperity for the next 20 years, and the debt was paid down.
So we have direct experiential evidence that deficit spending of 6% of GDP for four years does not work, but that deficit spending of 25% of GDP for four years does work. 25% of our current $14 trillion GDP is $3.5 trillion; Mr. Obama’s ‘stimulus’ package requests $850 billion over two years, or approximately 2.5% of current GDP—one tenth of what we know works! No doubt about it: this spending will NOT turn the economy around.
A bold plan of change we can believe in would pinpoint a target percentage of GDP using 25% as a starting point and then factoring in the many differences between the current situation and that of the 1940’s, rather than worrying about crafting a bill that will get near unanimous congressional approval. Once that figure is established, robustly defend that reasoning to the American people and have us pressure our Congress people to pass the legislation appropriating it. And bar lobbyists from Capitol Hill. Now that would be change we can believe in!

Jonathan Fluck