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After three years and $4 trillion in combined deficit spending,
unemployment remains stubbornly high and the economy sluggish. That
people are still asking what the government can do to stimulate the economy is mind-boggling.
That the Keynesian-inspired deficit spending binge did create jobs
isn’t in question. The real question is whether it created any net jobs
after all the negative effects of the spending and debt are taken into
account. How many private-sector jobs were lost or not created in the
first place because of the resources diverted to the government for its
job creation? How many jobs are being lost or not created because of
increased uncertainty in the business community over future tax
increases and other detrimental government policies?
Don’t expect the disciples of interventionist government to attempt
an answer to those questions any time soon. It has simply become gospel
in some quarters that massive deficit spending is necessary to get the
economy back on its feet.
The idea that government spending can “make up for” a slow-down in
private economic activity has already been discredited by the historical
record—including the Great Depression and Japan’s recent “lost decade.”
Our own history offers evidence that reducing the government’s
footprint on the private sector is the better way to get the economy
going.
Take for example, the “Not-So-Great Depression” of 1920-21. Cato
Institute scholar Jim Powell notes that President Warren G. Harding
inherited from his predecessor Woodrow Wilson “a post-World War I
depression that was almost as severe, from peak to trough, as the Great
Contraction from 1929 to 1933 that FDR would later inherit.” Instead of
resorting to deficit spending to “stimulate” the economy, taxes and
government spending were cut. The economy took off.
Similarly, fears at the end of World War II that demobilization would
result in double-digit unemployment when the troops returned home were
unrealized. Instead, spending was dramatically reduced, economic
controls were lifted, and the returning troops were successfully
reintegrated into the economy.
Therefore, the focus of policymakers in Washington should be on
fostering long-term economic growth instead of futilely trying to
jump-start the economy with costly short-term government spending
sprees. In order to reignite economic growth and job creation, the
federal government should enact dramatic cuts in government spending,
eliminate burdensome regulations, and scuttle restrictions on foreign
trade.
The budgetary reality is that policymakers today have no choice but
to drastically reduce spending if we are to head off the looming fiscal
train wreck. Stimulus proponents generally recognize that our fiscal
path is unsustainable, but they argue that the current debt binge is
nonetheless critical to an economic recovery.
There’s no more evidence for this belief than there is for the existence of the tooth fairy.
Not only has Washington’s profligacy left us worse off, our children
now face the prospect of reduced living standards and crushing debt.
This article originally appeared in a PolicyMic debate between the Cato Institute’s Tad DeHaven and Demos senior fellow Lew Daly. Check out Daly’s piece here.
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