On the other hand, even many important conservative, free market economists – including some of President Reagan’s top economists – believe we do need a very big fiscal stimulus a la the 1930s and 1940s. And here is where it gets even more confounding. Maybe a trillion dollar deficit is too small. Most economic historians believe that the Great Depression did not end until World War II because only then was the deficit spending big enough to fully replace the lack of private sector economic activity. FDR was afraid of big deficits and didn’t spend enough to end the depression sooner…
So, if the Depression-WWII theory is to be followed, next year’s deficit should not be a paltry $1 trillion, but rather about $2.5 trillion (in order to be about the same percent of the GDP as the World War II deficits were). At a mere trillion, we may be spending enough to badly inflate the currency without spending enough to lift the economy.
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So after years of whining about Bush’s deficits, the real problem is that they were not big enough?
Egads.
If more governmet spending worked; why not 200 trillion dollar deficits?
lorien1973 on January 20, 2009 at 12:18 PM
“So after years of whining about Bush’s deficits, the real problem is that they were not big enough?”
The problem: spending
The answer: spending
artist on January 20, 2009 at 12:20 PM
Fools – all of them. Wake me up when inflation gets past 11%.
Vashta.Nerada on January 20, 2009 at 12:22 PM
“Fools – all of them. Wake me up when inflation gets past 11%.”
In that case, don’t fall into deep sleep.
How about a cat nap?
artist on January 20, 2009 at 12:24 PM
Amazing.
the_nile on January 20, 2009 at 12:29 PM
“Crapshoot?” There is no crapshoot here. There is no risk involved in Socialism; this is the surest bet any country can ever make.
A crapshoot is when you go in hock to buy lottery tickets. There’s always a chance, however remote, that might end up making money on the deal.
But that’s not what we’re talking about here. What we’re doing now is the macroeconomic equivalent of realizing that you’re behind on the rent, and taking up a $2,000-a-week crack cocaine habit in the hopes that it’ll spur you to work harder to pay the difference.
logis on January 20, 2009 at 1:09 PM
We are already there.
Correction: We were already there last summer, it’s died down since. But the money supply is ramping up sharply so don’t unfasten your seatbelts just yet.
ZenDraken on January 20, 2009 at 1:31 PM
Anyone who is persuaded by those who believe that the ’stimulus’ bill will stimulate – even in the purest form possible – needs to study Mises, et al.
It is simply impossible for the government to right the economy by removing private dollars and putting them back again. It defies logic. Worse, it is immoral for them even to try. The purpose of the Federal government is NOT to ‘fix’ the private economy, no matter what the circumstances are at any given time.
Until so-called conservatives learn this, they will continue to be no better than the so-called liberals in the struggle for freedom and prosperity.
JDPerren on January 23, 2009 at 5:18 PM