Tag Archives: Great Depression

This video was on the front page of Daily Kos mainly to highlight what the author saw as betrayal by Sen. Evan Bayh on FOX News, where he explained why he planned to vote against the Federal spending bill that runs budget programs. I’m not, however, posting it here for that reason, as you’ll read below the video.

If he and other deficit hawks stopped for a moment to consider what they are actually saying, they might realize they were making the case FOR increased deficit spending. He cites the Civil War and WWII as the only times when he thinks the deficit-to-GDP ratio was higher than now (Bayh thinks it’s 12% of GDP right now, and by the end of WWII it was over 100% of GDP).

Ok, setting the Civil War aside because that brings up unrelated issues, let’s examine the issue of citing World War II deficits. Right now, we’re in a major recession. It’s the worst since the Great Depression (1929-1942ish). Now, we trundled along from 1929 to the US entry to war worrying about deficits and not spending too much compared to the national GDP, which was much smaller then than it is now. No amount of New Deal programs worked until 1942, when the New Deal went on Allied War Effort steroids. That doesn’t mean the New Deal failed because it was useless, it means it didn’t succeed because it didn’t go far enough.

World War II came along and we went WAY into debt and spent at a federal budget deficit exceeding the entire gross domestic product of the United States. This money went to buy and build weapons, pay factory workers, expand the bureaucracy, pay soldiers, overhaul the manufacturing industry, and increase government control over the American Total War Economy. Our long malaise and stupor finally broke and we emerged out the other side of the war on an economic crest (which temporarily dampened as spending and price controls were slashed rapidly by a Republican-run Congress). But the Great Depression was finally over and we didn’t go back to it. Without the extreme wartime spending, though, it’s probably safe to say the Depression would have continued longer.

While the debt was never entirely paid off, the deficit and debt levels were both brought reasonably quickly back under control, and they largely remained that way for the rest of the 20th century. By the time President George W. Bush took office, we were still paying down the national debt, but the spending was close to par with the revenue. No harm done.

Obviously, in the very long run, World War II-level spending would be unsustainable, but it was only meant for the short-term. Evan Bayh clearly makes an exception to his deficit concerns “rule” when he cites World War II…which came after/during the Great Depression and ended it permanently. That means that he knows it’s critical to act by massive government spending for a few years. There are exceptions to his rule, and he knows it, but doesn’t connect the dots.

Aren’t we in exceptional times right now?

This post originally appeared on Starboard Broadside.