Not quite a century ago, America had the Great Depression. The government at first tried to let the free market fix everything, used a tiny amount of stimulus, imposed austerity measures, and made things even worse. A subsequent administration used huge amounts of stimulus, which helped the economy to recover and made it possible for the United States to avoid being taken over by the German Empire later on. Only a few fringe theorists think that we should have stuck with austerity in that case.
A decade or so ago, Japan had a pretty severe recession. The government decided to impose strict financial discipline and imposed drastic austerity measures. Japan’s economy has not yet gotten back to where it was before the recession, even after all these years, and independent economists have pretty much reached a consensus that austerity didn’t work in that case.
A while back, China had no particular economic issues but DID have huge honkin’ political issues. The government used unnecessary stimulus to distract the populace and is now realizing that they are about to have a recession. Neither austerity nor stimulus should have been used in that case.
A year or four ago, America and Europe got whacked with the Great Recession. America hedged its bets and went with a small dose of government stimulus, and the EU went with drastic austerity measures. Today, America’s economy is slowly (very slowly) recovering while Europe’s is circling the drain. Once again, independent economists are saying that the Yanks’ stimulus approach helped to stop the bleeding, and the Europeans’ austerity measures have made a bad situation even worse.
So why, despite its lousy track record, do so many of us still think that austerity is a good tool to use in fixing our current financial mess?
Mr. B & C
Good article and this is a discussion that Americans need to have. I would first point out that your analyst of the great depression has many flaws, but I would challenge you on your statement that austerity measures where used at the beginning of the depression. What austerity measures where these? You may want to listen to Hoover as he tells the country about the great stimulus program he was instituting: http://dailybail.com/home/radio-address-hoover-announces-his-1931-stimulus-plan.html
Like all government stimulus plans it failed. So did the stimulus plan of FDR, unless you think 16 years and 400k+ dead Americans as a successful way to get out of a depression.
If you want to know why some austerity is needed to get out of recessions and depressions check out the history of the depression 1920: http://www.youtube.com/watch?v=czcUmnsprQI
Thank you for your time and I look forward to hearing your thoughts on this matter.
Look towards the beginning of Hoover’s tenure for examples of the austerity approach. As to FDR, yours is an oft-cited viewpoint, and one that misses a vital element: had we allowed the workforce of America to be degraded; had we not built necessary infrastructure during the 30’s; had we not used stimulus to keep the economy alive…what, then, would have happened had Hitler or Hirohito invaded us? My answer: we would have been eaten alive.
Yes, the war accelerated the recovery, we could not have responded as we did unless the “lights had been kept on” during the depths of the Great Depression. Look at what was built by Roosevelt’s alphabet soup of bureaucracies, and realize how vital much of it was to the war effort.
You make good points. I would say, that after studing the economic numbers of FDR’s administration, there where no signs of a recovery until the we got involved in World War 2… 13 years after the crash. Even the sec treasurey Morgenthau agrees with me:
“The Great Depression and its rampant unemployment were of primary focus for Morgenthau. And after almost two terms served by Roosevelt, Morgenthau assessed the federal effort to relieve economic conditions by proclaiming, “We have tried spending money. We are spending more than we have ever spent before and it does not work….After eight years of this administration we have just as much unemployment as when we started…and an enormous debt to boot!”…” Wikipedia: http://en.wikipedia.org/wiki/Henry_Morgenthau,_Jr.
If you want to learn more about the effects of FDR’s alphabet soup, read “New Deal, Raw Deal” http://www.amazon.com/New-Deal-Raw-Economic-Damaged/dp/1416592377
I’ll have to read these sources. Thanks!