American Elephants

When Governments Cut Spending. What Happens? by The Elephant's Child

Here’s Dr. Stephen Davies, from  Do governments ever cut spending? According to Dr. Stephen Davies, there are historical examples of government spending cuts in Canada, New Zealand, Sweden, and America. In these cases, despite popular belief, the government spending cuts did not cause economic stagnation. In fact, the spending cuts often accelerated economic growth by freeing up resources for the private sector.

Lots of history, lots of examples in the real world. Should be a no-brainier!

Another Little Lesson On Learning from History by The Elephant's Child

Those Who Cannot Learn From History…Are Doomed! by The Elephant's Child

In 1920, newly elected President Warren Harding inherited a very sharp economic downturn from his predecessor Woodrow Wilson .”Cato economist Jim Powell says that the downturn was “almost as severe, from peak to trough, as the Great Contraction from 1929 to 1933 that FDR would later inherit. The estimated gross national product plunged 24 percent from $91.5 billion in 1920 to $69.6 billion in 1921. The number of unemployed jumped from 2.1 million to 4.9 million.” From David Weinberger at Heritage:

“President Harding knew that the market would best recover if left to do so on its own. He loosened government’s inflexible grip and gave the economy the breathing room it needed. He cut spending sharply, from $6.3 billion  in 1920 to $5 billion in 1921 and $3.2 billion in 1922.”

Andrew Mellon was Harding’s Secretary of the Treasury, and Harding took his advice. He slashed tax rates steeply. The top income tax rate went from 73% to24%, and the bottom rate went from 4 % to0.5%.

These combined cuts resulted in economic recovery in 1922, only a year-and–a-half later. Gross national product rebounded, and unemployment fell to 2.8 million. The cuts fueled an explosion of growth and prosperity through the rest of the 20s.

Most of us are probably not all that familiar with President Harding, but we’ve heard of “The Roaring Twenties.” GNP expanded year after year without inflation. Productivity improved and real wages increased. The stock market tripled. The middle class expanded dramatically. The unemployment rate was as low as 1.8 percent in 1926.

The policy lessons of the 1920 downturn only serve to magnify the policy mistakes and mismanagement of the 1930s, which helped the 1929 downturn to become a decade long “Great Depression.”

New research  suggests that legislators should cut spending and pass growth-inducing policies. Spending cuts, according to the study, can positively affect economic growth and are the only historically reliable way to bring down deficits and debt.

The left continues to resist any suggestion of spending cuts. They see a depressed economy as no time to slash spending, which would only further weaken demand, and they believe that the problem of a recession is a lack of demand. That’s why they believe in stimulus. And if one stimulus doesn’t succeed, it’s because the stimulus wasn’t big enough. There is no basis for altering their thinking. That Franklin Roosevelt saved us from the Great Depression (after twenty years) is a matter of faith. They believe.

The left believes that all those smart people in Washington DC can effectively manage the economy, and choose winners and losers among America’s businesses. They believe that innovation comes from the government picking the ‘best’ ideas  out there, and supporting them with’government money.’

In 1837, financial panic swept the country. President Martin Van Buren was determined to get government out of the way. He slashed federal spending from $37.2 million in 1837 to $24.3 million in 1840, and taxes (mostly tariffs) went down as well. Some consider this the worst depression up until the Great Depression. The economy came roaring back within a few years, and federal revenues more than tripled one year into the recovery. Revenues, according to John Steele Gordon, had been a miserable $8.3 million in 1843, but the following year they jumped to $29 million.

When the Panic of 1893 hit, President Grover Cleveland refused to spend federal money.  He vetoed a $10,000 spending measure to help farmers in Texas.  His veto read “federal aid in such cases encourages the expectation of paternal care on the part of the government and weakens the sturdiness of our national character.” He vetoes 299 other spending bills. Real GNP fell about 4% from 1892 to 1893 and another 6% from 1893 to 1894, By 1895 the economy had grown beyond its earlier peak.

On the other hand, Barack Obama is asking Americans to believe that the U.S. economy can be taxed into prosperity. He wants to raise the tax rates on millionaires to a minimum of 30% while raising the highest income tax rate by 20%, double the rate on capital gains and add a new 3.8% tax on all capital earnings and triple the dividend rate— all this on top of ending the Bush tax cuts. Financial Armageddon indeed.

Art Laffer and Stephen Moore, in their new report “Rich States, Poor States,” compares the economic performance of states with no income tax to that of states with high rates.  Every year for the past 40 years, states without income taxes had faster growth on a decade basis. In 1980 there were 10 states with no income tax. They grew over the decade leading up to 1980 32.3 percent faster than the 10 states with the highest income taxes. The states with the highest income tax rates had no job growth at all.

Illinois, Oregon and California practice Obamanomics. All have passed soak-the-rich laws like the buffet rule and all face big deficits.  Illinois has lost one resident every 10 minutes since hiking tax rates in January. California has 10.9 unemployment and has lost 4.8% of its jobs.  Now they may raise taxes again. In California a union-backed ballot initiative would raise the state’s highest tax rate to 13.3 %. Nearly four million more people have left California over the last two decades than have entered the state.

Republicans have long championed the successes of cutting spending and cutting taxes to free up the economy. Worked for Coolidge, Kennedy, Reagan and George W. Bush. But some people cannot learn from history.

Something Wonderful by The Elephant's Child
April 23, 2012, 6:43 am
Filed under: Art, Cool Site of the Day | Tags: , ,

To pass the time during long flights, artist Nina Katchadourian goes to the lavatory, adorns herself in tissue costume, and creates hilarious self-portrait photos in the style of Flemish Renaissance paintings. She calls the series
Seat Assignment Lavatory Self-Portraits in the Flemish Style”

(h/t: Laughing Squid)

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