The View From 1776
Tuesday, August 02, 2011
Government Spending, The Welfare State, and Economic Recovery
If the welfare state’s inflation, high taxes, militant labor unions, and strangling regulations had not driven so many private-sector jobs overseas, budget cuts under the new debt-ceiling deal would have no negative effect.
Many economists and liberal-progressive media pundits predict that the limited budget cuts in the Federal debt-ceiling deal will stall economic recovery or push us into a double-dip recession. Historically there was no such effect before arrival of the liberal-progressive-socialist welfare state under presidents Hoover and Roosevelt in the 1930s.
In Keynesian theory, the economy is dependent on consumer spending, which can be maintained or amplified only with government stimulus programs. Propagandists like the New York Times’s Paul Krugman believe that it’s essential for the Federal debt to grow almost without limit.
Theirs is a resurrection of the 1930s liberal-progressive conception that capitalism had died a deserved death, that from then onwards, and forever, creation of new jobs would require the ministration of academic state planners, funded by Federal spending. As today, in the business-bashing bombast of President Obama, the unstated thesis was that “the rich” had illegitimately accumulated most of the nation’s wealth and that redistributing such wealth via higher taxes and welfare handouts was the only way to revivify the economy.
This is egregiously wrong.
First, no Federal intervention during recessions was needed, from 1776 until 1922, a period during which the United States grew to become the greatest economic power on earth. Second, Federal intervention has never worked as predicted, but it has pumped up the cost of living roughly a thousand percent since 1933.
The real redistribution of wealth has been inflation’s robbing the purchasing power of people’s savings and retirement incomes.
The 1920-21 recession after World War I was nearly twice as severe as the Great Recession that commenced in 2007. In 1920-21, the Federal Reserve