Comment 26607

By geoff's two cents (anonymous) | Posted September 16, 2008 at 23:28:26

"Regarding the Great Depression, what I have said, and what the numbers support, is that increasing non military spending leads to reduced output in the economy. One goes up (spending), and the other goes down (economy). These events happen near simultaneously, so it is easy to see the connection between the two. Therefore, there is no contradiction."

What you have shown is correlation, not a cause and effect connection.

Nevertheless, this correlation is not even correct. Government spending increased dramatically immediately prior to economic recovery, and skyrocketed throughout the rest of the decade, correlating to an improving economy.

From 1929-32, the Hoover administration was relatively fiscally conservative. Taxes skyrocketed under Hoover, but spending increased much more modestly, in an effort to balance the books. The years 1929-33 were characterized by a 13% increase in public expenditure to deal with the disaster.

Roosevelt's New Deal, on the other hand, which in its various manifestations did not appear until 1933, the worst year of the GD, in which GDP plummeted to merely 53% of the 1929 level, raised public spending by 24% from 1933-37, and by significantly more in the years leading up to American involvement in WWII.

There are other significant events that correlate to economic recovery after 1933 that you cite above, of course, that cannot be precisely linked to numbers of dollars spent - Perhaps most importantly among them the creation of the Federal Deposit Insurance Corporation, which insured deposits in member banks.

My numbers are from the BEA as well. They show a marked correlation between a massive increase in public spending and economic recovery.

"Geoff, let's try this one more time. I believe that when government tries to help people, it actually produces the opposite effect. Got that?"

Your beliefs are loud and clear - your logic is often fuzzy, sometimes outright invisible.

You say "The numbers support this theory, since in 1933, after taxes had been raised dramatically, and social spending had leveled off, the economy stopped shrinking."

I say that government spending increased before 1933, but skyrocketed after that time, and that it is actually this increased government spending, coupled with other government actions in the U.S. and around the world, in response both to the hardships of the GD and, particularly from 1936 forward, the aggression of the Germans and Japanese respectively, that correlates to increased economic productivity.

Your distinction between military and non-military expenditure is not necessarily helpful. A soldier or munitions worker is still paid by the government. It is the successful and selective intervention of government in the private sector, and the increase in public expenditure that accompanied economic recovery in the mid to late 1930s.

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