“When the economy goes down there are [intrinsic] restorative forces that drive it back up,” observes UCLA economics professor Lee E. Ohanian, in contrast with the view that without substantial government programs you’ll go down and stay down for a long, long time.”
Yes, just as certain vulgar bumper stickers remind us that “excrement” happens, so do recessions followed by recoveries.
In fact, there were 12 recessions or depression just from 1850 to 1900, according to the National Bureau of Economic Research, and plenty before that. All before government could even pretend to do much about them. Not incidentally, despite mythology, U.S. recovery during the Great Depression began in the second quarter of 1933, while Congress was still voting on the earliest New Deal legislation. Sadly, a similar myth helped propel Hitler to power months after Germany’s recovery began.
As for actually ending the depression, “currency devaluations and monetary expansion became the leading sources of recovery throughout the world,” wrote a highly-regarded economic historian in 2003. “Fiscal policy, in contrast, contributed almost nothing to the [U.S.] recovery before 1942,” she asserted in a 1992 paper. Yes, that was Christina D. Romer – back when she was just a humble Berkeley economics professor.
Yet the Obama version Romer insists fiscal stimulus is “a well-tested antibiotic, not some newfangled gene therapy.” She herself recognizes this seeming double standard. “Some have concluded” from her 1992 paper she told the Brookings Institution in a March 9 speech, that “I do not believe fiscal policy can work today or could have worked in the 1930s. Nothing could be farther from the truth.”
“Some” may have reached that conclusion because her 1992 paper contains no hint that fiscal policy of any size or length has any benefit. Her 2003 paper contains such a hint, but only in the case of Japan and only “combined with substantial monetary expansion and an undervalued yen . . .” It also helped that Japan suffered a 8.5 percent decline in industrial production, compared to 46.8 percent in America and worse elsewhere.
The only problem with the U.S. government’s Great Depression stimulus, she said at Brookings, is that it was too small and too short. Yet there she was, August 6, insisting a small short stimulus had “absolutely” helped turn the economy around.
Tellingly, she felt obligated to exaggerate it, claiming “As of the end of June, more than $100 billion had been spent,” giving the Recovery.gov website as her source. That website, however, actually says only $60 billion had been “paid out” by then, much less actually spent by recipients. Regardless, both figures pale in comparison to the $2 trillion the Fed had already pumped into the economy by April 2 when the first stimulus dollars were going out.
“Politics is the art of the possible,” German Chancellor Otto von Bismarck said. Under the Obama administration, apparently it’s become the art of the impossible.
Michael Fumento is a, journalist, and attorney specializing in science and health issues as well as author of BioEvolution: How Biotechnology is Changing Our World .
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