The S Word

I’ve been waiting, oh, more than three years now. Waiting for someone to draw some historical parallels, look to the past for tips on how we might get out of the economic mess spurred by the burst housing bubble and the other financial shenanigans that had so many people talking doom and gloom in the waning days of the Bush II administration (seems so long ago, doesn’t it? And have you read anything about what W is up to these days, or seen a picture, any time recently? Me neither).

What we did have, at the beginning of the Obama Administration, was a bit of debate over the need for government stimulus to keep things from getting worse. Republicans knee-jerked their usual response: No more federal spending to boost the economy! We’ve got this debt to tackle (debt which ballooned after the Bush tax cuts and funding two wars that began on his watch, but we won’t walk about that). Elected Democrats generally went along with the idea of a stimulus, though none seemed eager for the ginormous package some liberal economists insisted was needed to really rejuvenate the economy. Obama got through a package that has been unthinkable since 2010, when the Republicans took control of the House. But the package could have been bigger. Despite conservative protestations, Keynesian economics does still work.

Right?

Such an intellectually honest man! Could he be the one I seek? Nah...

It’s been amusing, when my teeth haven’t been clenched, to watch John Boehner and others bad-mouth recent good economic reports. Not good as in “We can all jump for joy because the economy is booming again,” but good in the sense of, “Well, it’s better than it has been for a long while, it seems like the positive news can be sustained (barring further turmoil in Europe and war with Iran…), and it might have better even earlier, if we had had more stimulus.” But the time for stimulus is over, and some liberals don’t even want Obama to talk about the good his limited program did, according to The Economist. The program “remains unpopular with the general public,” a public that has been inundated with Republican talk of the evils of the deficit and more government spending.

Of course, maybe we should listen to the experts The Economist refers to, who generally believe that the stimulus kept unemployment from rising another 2 percentage points above its 10 percent peak, and particularly saved the jobs of municipal  employees—you know, such inconsequential folks as cops, firefighters, and teachers—as states and cities grappled with their own budget crises. Even a former critic of the stimulus has come around to say that deficit spending during a recession has its uses. And a Kiplinger columnist recounts some of the thinking of Carmen Reinhart, co-author of a new study on the nature of financial crises and recessions. In a nutshell: the downturns generated by the financial crises, historically, have been worse than your-run-of-the-mill recessions. So get used to sluggish growth, as we are not nearly out of the woods. But Reinhart also believes that the Obama stimulus and the bailouts kept us out of a depression.

Uh, here’s a guess: You won’t hear much about any of that coming from the mouths of Republicans or their media pals during the next nine months.

The Arsenal of Democracy, baby!

So, all that brings me back to my history lesson. I’m not an economist, god knows, but I’ve written a few books about the Great Depression. And you know what pulled us out of it? It wasn’t Roosevelt’s New Deal. No, it was World War II. I am not, of course, advocating that we gin up the military-industrial complex even more than we have the past decade. But I’m searching, lamp in hand like Diogenes of old, for the one intellectually honest Republican to admit that the worst economic crisis in our history was not solved by austerity and tax cuts for the rich. It was solved by massive government spending. Historian John Steele Gordon, in his An Empire of Wealth, outlines the scale of the spending: “In the first six months of 1942, the government gave out more than $100 billion in military contracts, more than the entire gross national product of 1940.” In 2009, if Obama had called for government spending just one-tenth of the GDP of 2007, the country would have spend just over $1.4 trillion—about double what was spent.

In 1940, U.S. unemployment was still close to 15 percent. By 1943, 7 million more Americans were back at work, either in the military or in defense factories. These figures can be found here, a fairly conservative website, and the author seems to discount the war’s overall impact on reviving the economy, at least for consumers. But there’s no question that government spending put people on the payrolls. By 1945, just 1.9 percent of Americans were out of work.

Again, I don’t want to ratchet up the war machine even more than we have since 2001. But we can be honest and say that the government had a large role to play in putting people back to work. And maybe we could look back to the Great War era to get some guidance on our tax policy. The highest rate during the war years was 94 percent on people making more than $1 million per year. I don’t have exact figures, but that would probably be today’s One Percent. Don’t worry, neither I nor anyone else is calling for anything that drastic. A simple repeal of the Bush tax cuts on the wealthiest would be a start. I’ll keep out the lamp out to spot any lone Republican calling for that, too.