Budget Deficits and Stimuli
It’s an article of faith that running budget deficits during the New Deal helped end the Great Depression. This myth has been demolished countless times, but it hasn’t penetrated to the pundits and pop economists who host cable news-talk shows. In fact, FDR did not run extraordinarily large budget deficits, and J.M. Keynes actually criticized FDR for this. For details see this New York Times article by Price V. Fishback of the University of Arizona and the National Bureau of Economic Research. Fishback writes, “Once we take into account the taxation during the 1930’s, we can see that the budget deficits of the 1930’s and one balanced budget were tiny relative to the size of the problem [reversing the fall in GNP since 1929].This point was also made by Jim Powell in FDR’s Folly: “Changes in federal budget deficits didn’t correspond with changes in gross domestic product, and in any case the federal budget deficit at its peak (1936) was only 4.4 percent of the gross domestic product, much too small for a likely cure.” (Emphasis added.)P.S.: Of course, this does not mean that FDR should have run deficits to end the depression. It woudn’t have worked because government borrowing doesn’t add wealth to an economy; it just moves it around. (See Bastiat.) And inflation steals purchasing power and distorts the structure of production. Both measures put politicians rather than consumers in the driver’s seat.
Comment by Lisa P on 4 December 2008:
Public debts and deficits is one of the reasons why are are experiencing this economic crisis. America certainly didn’t wind up in this shape because of payday loans. December 2007 is the point at which we “officially” entered a recession, according to economists. The National Bureau of Economic Research group (NBER) concluded that December 2007 was when the last peak was, and the economy has declined since then. NBER defines a recession as a “significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators.” The government, academics, and the private sector consider the NBER’s judgment to be the most definitive authority, so this is as close to official as there is. The determination is based on employment, income, sales and industrial output figures. The peak times were December 2007 for employment and incomes, industrial output in January, and sales peaked in June 2008. The Democrats weren’t really surprised, and called for a stimulus package for the economy. Senate Majority Leader Harry Reid (D-Nevada) said that “The announcement simply makes official what we have long known: with rising costs of living, rising unemployment, record foreclosures and depleted savings, we must do more to help families make ends meet.” Reid said a recovery package must create good paying jobs in the US, cut middle class taxes and bring back confidence in the market. Not rolling over and ceding immediately to the banks’ desire to ban payday loans would be a good idea too. Now remember: economies go in cycles of boom and bust. The boom cycle that just ended in December lasted from November 2001 to December 2007; 73 months of expansion, just over half as long as the record 120 months. The average expansion since World War 2 has been 57 months. For more info on <a title=\"What are Payday Loans?\" href=\"http://personalmoneystore.com/moneyblog/what-are-payday-loans-2/\">Payday Loans</a>, click the link.
Comment by Lisa P on 4 December 2008:
Public debts and deficits is one of the reasons why are are experiencing this economic crisis. America certainly didn’t wind up in this shape because of payday loans. December 2007 is the point at which we “officially” entered a recession, according to economists. The National Bureau of Economic Research group (NBER) concluded that December 2007 was when the last peak was, and the economy has declined since then. NBER defines a recession as a “significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators.” The government, academics, and the private sector consider the NBER’s judgment to be the most definitive authority, so this is as close to official as there is. The determination is based on employment, income, sales and industrial output figures. The peak times were December 2007 for employment and incomes, industrial output in January, and sales peaked in June 2008. The Democrats weren’t really surprised, and called for a stimulus package for the economy. Senate Majority Leader Harry Reid (D-Nevada) said that “The announcement simply makes official what we have long known: with rising costs of living, rising unemployment, record foreclosures and depleted savings, we must do more to help families make ends meet.” Reid said a recovery package must create good paying jobs in the US, cut middle class taxes and bring back confidence in the market. Not rolling over and ceding immediately to the banks’ desire to ban payday loans would be a good idea too. Now remember: economies go in cycles of boom and bust. The boom cycle that just ended in December lasted from November 2001 to December 2007; 73 months of expansion, just over half as long as the record 120 months. The average expansion since World War 2 has been 57 months.