The Road to Recovery

Lord Tweedsmuir’s widely quoted statement, “Those who do not know history are condemned to relive old mistakes,” could not be more apt than now. We are reliving some old mistakes—and these mistakes are impeding recovery. We can learn which of our current economic policies are mistaken by an examination of history. In particular, we can learn that current federal spending and the resultant deficit, which are supposed to be aiding recovery, are actually impeding it. We can learn from history that fiscal stimulus and deficit spending are not the road to prosperity.

Take the experience of 1948-49, for example. There is no doubt that deficit spending failed to produce the expected consequences in 1949. It failed to produce the runaway boom that was predicted by the fiscal ideologues and it failed to prevent a recession. Despite a marked increase in fiscal stimulus in 1948 and 1949, recession occurred in 1949. In 1948, there was a $12-billion swing in the federal budget in the direction labeled “stimulus” by the fiscal ideologues, a result of a 1948 tax cut and increased spending. Those who believe increases in spending relative to tax collections stimulate the economy were so worried that a runaway boom and inflation were going to follow this $12-billion swing in the federal budget (equivalent to a $75-biIlion increase in today’s budget) that they persuaded President Truman to veto the tax cut. Congress overrode Truman’s veto.

YB

About the Author

Yale Brozen

Lord Tweedsmuir’s widely quoted statement, “Those who do not know history are condemned to relive old mistakes,” could not be more apt than now. We are reliving some old mistakes—and these mistakes are impeding recovery. We can learn which of our current economic policies are mistaken by an examination of history. In particular, we can learn that current federal spending and the resultant deficit, which are supposed to be aiding recovery, are actually impeding it. We can learn from history that fiscal stimulus and deficit spending are not the road to prosperity.

Take the experience of 1948-49, for example. There is no doubt that deficit spending failed to produce the expected consequences in 1949. It failed to produce the runaway boom that was predicted by the fiscal ideologues and it failed to prevent a recession. Despite a marked increase in fiscal stimulus in 1948 and 1949, recession occurred in 1949. In 1948, there was a $12-billion swing in the federal budget in the direction labeled “stimulus” by the fiscal ideologues, a result of a 1948 tax cut and increased spending. Those who believe increases in spending relative to tax collections stimulate the economy were so worried that a runaway boom and inflation were going to follow this $12-billion swing in the federal budget (equivalent to a $75-biIlion increase in today’s budget) that they persuaded President Truman to veto the tax cut. Congress overrode Truman’s veto.