WASHINGTON — A discussion of the economy is pointless without the context of history, which is why the economic naysayers should brush up on their history. The deficit during World War II was higher as a percentage of GDP than it is today, and the general belief then was that the country would sink back into the Great Depression that preceded the war. It did not happen. Spending during the war created the booming economy that built the largest middle class this country, or any country for that matter, has ever known.
When the economy is weak, everybody plays the blame game. But a look back at recent history, from the Depression of the 1930s to the Great Recession President Obama faced, we should have learned that Keynesian economics, or priming the pump, is the proper medicine to cure a major financial crisis. Obama’s stimulus package, launched in the first days of his presidency, was the right approach, but it wasn’t sufficient. Congress overly engineered the legislation with too much money going to the banks that then failed to do their part and lend the money, stalling the recovery.
The stimulus legislation came first but when it became apparent that it wasn’t enough to jumpstart the economy, Federal Reserve Chairman Ben Bernanke stepped in. A student of the Depression, he understood what was needed, putting in place QE 1, then 2, then 3, the bond buying programs that poured money into the economy which soaked it up like a dry sponge. He got his share of criticism from an emerging anti-deficit movement under the banner of the Tea Party, which claimed the Fed’s policies coupled with Obama’s policies would doom future generations to endless debt. But history has proven anathema to the Tea Party.
The growth rate for the third quarter of this year has been revised upward to a 4.1 percent annual rate, vindicating President Obama’s policies and those of the Federal Reserve. When Bernanke announced earlier this month that he would be tapering the Fed’s bond buying program from $85 billion a month to $75 billion a month, the markets responded positively, and with good reason. The recovery is gaining steam.
Fed chair nominee Janet Yellen is one of Bernanke’s disciples, and she will be sworn in as his successor when the Senate is back in session in January. Yellen is committed to Bernanke’s approach, so it’s safe to assume the Fed’s bond-buying program will stay in place, but tapering as the economy grows stronger and stronger.
All the scare talk from the political right about the debt and deficit dragging us down and condemning our children and grandchildren to a future of gloom and doom is nonsense.
History has repeatedly proven that massive government spending during a depression or recession is the cure, not the disease, even if it means a temporary ballooning of the deficit.
Then, when the economy begins to take hold, the government can take its foot off the accelerator, which is what we’re seeing now. It should be a very happy New Year.
U.S. News Syndicate, Inc.