24/7 Wall St.

By John Tamny of RealClearMarkets
“Whereas before there had been almost no framework to explain what Roosevelt was doing, now a respectable one was forming. Spending promoted growth, if government was big enough to spend enough.” ~ Amity Shlaes, The Forgotten Man

Perhaps as a result of all the commentary suggesting that we’re in the midst of the worst economic downturn since the Great Depression, there’s lots of talk about what led us out of same. It’s conventional wisdom that the government spending wrought by World War II ultimately sparked our emergence from the 1930s downturn, but the evidence suggests otherwise.

World War II spending did not stimulate economic spirits in the U.S., but congressional pushback on New Deal legislation, a move toward freer trade and increased output on the part of the American citizenry did. To show why government spending is not the economic stimulant that many economists suggest, it’s first worthwhile to look at one downturn that occurred before economists were aware of the supposed wisdom of John Maynard Keynes

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