Sunday, March 7, 2010

Was it the spending or the war that ended the Great Depression

With our national debt currently at around 86% of Gross Domestic Product and rising, many are concerned about the fiscal future of our country. Others point to the 1940's, when spending on World War II skyrocketed national debt to 120% of GDP and pulled us out of the Great Depression. They credit massive government spending with saving the economy.

If you look only at the statistics, that's true. But you have to put the spending in context. World War II was an endeavor that most individuals in the country had to be personally involved in. Millions of able bodied adult males were drafted and the women worked the factory jobs. We didn't have drones, satellites and assembly line robots. We had to use people. As a result, a huge segment of the population was taken out of its comfort zone and exposed to new ideas, new people, new places. It was a nation-wide life changing phenomenon even greater than the internet.

The massive spending was not on "make-work" projects. We needed specific things for our very survival. We needed air craft carriers, ships, vehicles, bombs. We had to reverse engineer whatever the enemy came up with. We needed to do it better and throw it right back at them. It was a highly motivated population working at absolutely necessary endeavors. We were not building bridges to nowhere, studying ketchup flow or planting flowers in the highway medians, just to keep people busy.

All of these things together created a huge jump in productivity and we were able to overcome the massive debt we had created. We are in a very different circumstance today. Spending alone will not fix our economy any more than recruiting one member of the New Orleans Saints will get you a Super Bowl win next year.

Perhaps fending off an invasion of extra-terrestrial invaders could have a similar impact. But, I don't think banking on that scenario is a good idea. It's time to reign in the government and its spending and remove the overhanging burden of massive debt from the marketplace.

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