The end of a long cycle

The financial calamities recently experienced in the United States and elsewhere represent the end of the line in certain policies begun during FDR’s “New Deal” and, perhaps, a reversion to policies previously in effect.

Prior to the Great Depression, economists looked more favorably on proposals to deal with unemployment by cutting work hours. The Depression persuaded economist and others that this was “sharing the misery”. Instead, top advisors to the Roosevelt administration favored increasing demand through government spending. John Maynard Keyes came to Washington to promote countercyclical spending.

The Depression lasted twelve years. Ultimately, it took World War II to lick unemployment and revive the consumer market in the postwar years. This lesson was not lost on economists in the Truman administration such as Leon Keyserling who favored massive increases in military spending not only to contain Soviet expansion but to keep the economy going. Military spending would permanently prime the pump.

Although Eisenhower and a few others objected, this has been our economic approach for the last sixty or so years. We built a huge military machine first to fight the Russians and then to fight terrorism, drug cartels, or whatever. The federal government threw away whatever fiscal restraint it might once have had to run up massive budget deficits. We are now locked into expensive foreign wars, trade deficits, and a growing national debt, together with unfunded entitlement programs, whose cost future generations will have to bear.

Present policies are unsustainable. It seems that we at the end of the line in heeding the type of economic advice that was given to Presidents Roosevelt and Truman. Might we, perhaps, revert to an earlier approach in considering legislation to reduce working hours? The tantalizing prospect is that the U.S. economy might then revive.

When it’s broken, fix it. Will Congress and the President get the message?