Tuesday, September 7, 2010

Why government spending works -- in war, not in peace

Victor Davis Hanson:
If Only It Were World War II Again?

Hanson's point of departure is a typical Krugman eye-roller telling us, for the umpteenth time, how we have to spend our way to prosperity. First, the former Enron advisor (thanks, Taranto) states the well-known fact that the only thing that got the American, and possibly world, economy out of Depression in the 30's was global war in the 40's. And this was largely because the government went deeply into debt to fund that war. So Krugman, living proof that linear thinkers too can win Nobel Prizes, thinks we should do the same now.

Hanson's column gives some reasons why that's not really an option:
The war years were characterized by frenetic hyperactivity: Americans worked long hours, women were brought into the work force, new towns and manufacturing centers sprang up, and people gave up necessities — all on the assurance that this furious pace and consumer scarcity would be short-lived.
As WWII ended and the clean-up began, there was an enormous amount of pent-up global demand for goods....
At home, four years of consumer deprivation during the war and the weak demography of the 1930s had combined to create huge demand, all while society was increasingly leaving the farm for good and becoming suburbanized.
For Krugman, though, all this is negligible: "But always remember: this slump can be cured. All it will take is a little bit of intellectual clarity, and a lot of political will." He wouldn't be the first liberal-lefty, of course, to secretly hanker after the expression of will and discipline found only in war -- think of William James' "Moral Equivalent of War", referring approvingly to that old statist, H.G.Wells. But it's not just a certain strain of "liberal fascism" that is the problem here -- there's also a kind of magical thinking that comes from too big a swallow from the Keynesian bottle, giving rise to the idea that any amount of debt can always be addressed by simply spending more and faster, as though you really do get money for nothing. That this has something in common with the mentality of compulsive gamblers, just before they crack up, should not go unnoticed.

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