Stimulus by Spending Cuts: Government cuts spending 50%!

cato.org ^ | May/June 2010 | Jason E. Taylor and Richard K. Vedder

[dynoman]

THE DEPRESSION OF 1946

Historically minded readers may be saying, "There was a Depression in 1946? I never heard about that." You never heard of it because it never happened. However, the "Depression of 1946" may be one of the most widely predicted events that never happened in American history. As the war was winding down, leading Keynesian economists of the day argued, as Alvin Hansen did, that "the government cannot just disband the Army, close down munitions factories, stop building ships, and remove all economic controls." After all, the belief was that the only thing that finally ended the Great Depression of the 1930s was the dramatic increase in government involvement in the economy. In fact, Hansen's advice went unheeded. Government canceled war contracts, and its spending fell from $84 billion in 1945 to under $30 billion in 1946. By 1947, the government was paying back its massive wartime debts by running a budget surplus of close to 6 percent of GDP. The military released around 10 million Americans back into civilian life. Most economic controls were lifted, and all were gone less than a year after V-J Day. In short, the economy underwent what the historian Jack Stokes Ballard refers to as the "shock of peace." From the economy's perspective, it was the "shock of de-stimulus."

[dynoman]

We are at a fork in the road, our government has us on a path a path that's unsustainable, do we have the nuts to force our government to cut spending by 50% today?

If not, it's over.

[November 2010]

Hmmm. And Harding cut spending by 50% in 2 years and ended a depression in 1920-1921. What lesson can we draw from continuing depressions under Roosevelt and Obama with massive government increases in spending, and recovery and boom times with major spending cuts in the face of the same situation: high unemployment?

Only a fool can remain a Keynsian in light of historical fact.

Cut spending 50%, cut taxes also, step back and let us raise our families and save for retirement and pay for what we need.

Please!

[Jack Black]

I think it’s over even if we do cut spending by 50%. That would bring us a small surplus, but we have a giant, humongous, super-jumbo sized debt to pay back. And we have (some estimate) up to $200 Trillion in unfunded mandates coming at us like a wave.

I think some sort of default is required. I prefer a default to chaining my kids and grandkids to a debt they had nothing to do with. The idea of my daughters paying 50% tax rates for their entire working career so that the friends of Barry at Goldman Sachs, their children, Barney Frank’s butt-boys, Harold Raine’s grandkids and Chelsea Clinton (hedge fund employee) can enjoy a life of leisure clippling T-bill coupons and playing polo is sickening.

[KarlInOhio]

One difference between then and now is that in 1946 there had been years of enforced deprivation and rationing on the home front. People desperately wanted housing, cars, tires, gasoline, clothing, unrestricted food and a lot of other things. If anything right now we've had an overabundance of "stuff" for years. Do I need a new TV, DVDs, car, house, etc. etc.? No. If I were to get a raise I would probably squirrel the money away for the future, either as cash, stocks or gold.

[PATRIOT1876]

*We are at a fork in the road, our government has us on a path a path that's unsustainable, do we have the nuts to force our government to cut spending by 50% today?*

We can cut all money to the EPA the NEA and the UN without feeling ANY pain.

In fact, cutting the EPA will relieve business of absurd environmental laws and cause the economy to grow. We could leave industry with a very few laws so that we don't become like India or return to the pollution of the ‘60’s.
Perhaps offer allow them to self-police under the threat of bringing back a similar agency.

I have faith in business.

[ReleaseTheHounds]

Famously, Sewell Avery (CEO of Montgomery Ward) expected a depression after WW II and hunkered Wards down accordingly. At the same time, Sears expanded dramatically and became the leading retailer in the world for the next 3 decades.

...

As Reagan said, Government IS the problem... Time for Government to be reduced. Get off our backs, get out of our way, get out of our wallets.

[dynoman]

What's important is to note the economy handled those spending cuts of 50% without further government intervention much better than it's handled the government stimulus the last two years! It really comes down to what John Galt told government, “Get the hell out of the way!”

Government is a problem, a necessary evil, NOT the solution.

[firefox]

That is one well constructed article! Dems, Libs and their useful idiots should be forced to read it. But Conservatives need to read it as well so as to reinforce an otherwise well known set of principles.

[November 2010]

Government canceled war contracts, and its spending fell from $84 billion in 1945 to under $30 billion in 1946
____________________________________________________________

$1.00 in 1946 had the same buying power as $11.87 in 2010.

Annual inflation over this period was 3.94%.

http://www.dollartimes.com/calculators/inflation.htm

Let’s just call it 10 cents on the modern dollar for a dollar in 1946.

If we had kept post new deal spending intact and adjusted for inflation we’d have spending of 300 billion dollars today. Instead we spent 3.5 trillion. Over 10x what government spent in 1946 adjusted for inflation.

It’s hideous.

[BenKenobi]

The other thing is that you don’t have favourable demographics. That’s a structural problem which has absolutely nothing to do with the debt.

[Vaduz]

Government cuts spending 50%,our spending that is.

[EBH]

They also didn’t have credit cards. I think that is the bogeyman in this whole scenario.

[dynoman]

Did you see the recent news that student loan debt exceeds credit card debt?