American Elephants

The U.S. Has No Credible Long-Term Plan. None! by The Elephant's Child

When confronted with the Standard & Poor’s downgrade of our credit rating from AAA to AA+, the administration could have reacted in one of two ways. It could have taken the downgrade as useful information and made plans to address the problems and earn back our AAA rating. Instead they chose to attack Standard and Poor’s as incompetent and not credible.  Not confidence inspiring at a time when confidence is needed.

Standard & Poor’s has accurately pointed out that the U.S. has no credible long-term plan to address our fiscal deficits. There is clear and incontrovertible evidence about what works. Liberals are fixated on FDR and the New Deal. Obama keeps comparing this recession to The Great Depression — if his recession is big enough he will get the brownie points FDR got from many for “saving the country.” Of course FDR  didn’t do any such thing.

Roosevelt spent all sorts of money, offered all sorts of government jobs, all sorts of new regulations and bureaus and agencies. It was the birth of the three-letter acronym: the WPA, the NRA, the CCC and the TVA.  It was the birth of the idea of hiring people to dig ditches and then fill them in again.  Government jobs are paid for with money from taxpayers’ pockets. They are not free and they don’t add to the economy.  Roosevelt made the Depression worse, and made it last longer.

Democrats have long believed that all the spending in World War II was what ended the Depression, so spending will stimulate. UCLA Business professor Richard P. Rumelt said:

Last month, former Obama adviser Larry Summers put the case this way: “But for Hitler and the military buildup he caused, FDR would have left office in early 1941 a failure, with American unemployment above 15 percent and with the recovery promise of the New Deal shattered.” And in 2008, Princeton’s Paul Krugman referred to “the enormous public works project known as World War II.”

This is received wisdom to many economists and historians, but it skates around key facts of the World War II economy. Chief among them: Government policy didn’t stimulate personal consumption, as Keynesian policy makers aim to do today, but rather enforced thrift.

There was no investment in infrastructure. There were no inter-state highways.  The government put real restrictions on consumption. Anything of value to the war effort was rationed— gasoline, tires, meat, sugar, shoes, processed foods, butter and cheese and more. Margarine made its first appearance. Factories that had made household appliances like stoves and refrigerators were turned to producing military goods. No new cars nor radios.   There was nothing to buy, and nowhere to go.  Travel was restricted. Wage increases were restricted, and war bond rallies were everywhere, while schoolchildren bought savings stamps towards  war bonds every week at school. Scrap metal was turned in, and everyone had a victory garden. Enforced thrift. Civilian living standards stayed at Depression levels.

In 1933, the U.S. Army numbered about 137,000 men.  The U.S Army wa 16th in the world. The French Army numbered 5 million. When Germany invaded France in 1940 , conscription was reinstituted. By the time of Pearl Harbor, the Army had increased to 1,640,000— still woefully unprepared and ill-equipped.

In 1939, about 15 percent of the work force was unemployed. The war did end unemployment by enlisting 11 percent of workers in the military. About 20 percent more hours were worked and generated a 65 percent increase in real disposable income. During the war years over 22 percent of disposable income was saved. American saving during the war  was $142 billion or about $1,3  trillion in 2005 dollars.

Once civilian production resumed, rationing lifted and returning soldiers  got jobs, people rushed to replace rusted out cars and broken down appliances.  Consumer finance was instituted by manufacturers, and homebuilding began to meet the needs of new families who began giving birth to the baby boom.

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