Economic History

by Tom Rhodes, 6/12/11

Arguably the greatest government stimulus package we ever saw was World War II. What followed was the post WWII recovery, arguably the greatest economic boom we have ever seen. What did the government do to create such a boom?

Quite simply it rolled back to a small portion of what it was in WWII: Within one year government spending went from $84B to $30B; 10 million soldiers were released from service; economic controls and rationing were lifted; in short it was a shock-and-awe type of de-stimulus.

Keynesian economists of the day predicted that the abrupt withdrawal of government spending would plunge the economy into another depression. They predicted 14% unemployment.

The reality was that unemployment rates remained under 4.5%; employment grew, household consumption grew, business investment grew, and exports boomed, as government spending decreased.

Our postwar experience shows that growth is not generated by massive government action, but by the exact opposite. We do far better when the government will get out of our way and not to choke us with trillions of dollars in new debt.

A recent Harvard study showed that when a region has their congressman head a important committee, rather than do better they usually do worse economically.

Why are we unwilling to learn from our past. It is painfully obvious that massive government spending has not done as predicted; history has shown repeatedly that more government will not lead to more growth. Why don't we look at history, and repeat our post WWII success, with a massive de-stimulus and contraction of the government?