Wednesday, October 10, 2012

Larger Government & More Spending Doesn't Work

History tells us that more government spending is not the path to prosperity. Proponents of government spending often point to the New Deal as the model of success. In school, we were taught that Herbert Hoover’s austerity measures turned the stock market crash of 1929 into the Great Depression. Nothing could be further from the truth. Under Hoover, non-defense federal spending increased by 259% from 1929 to 1933. He started huge infrastructure projects and raised taxes on high earners. Even Franklin D. Roosevelt described Hoover’s spending as “extravagant and reckless” when campaigning for the presidency.
Despite the campaign rhetoric, FDR simply expanded the government spending, tax hikes and control over the economy. As a result, we had the longest period of economic misery in the history of our nation. In 1939, FDR’s own Secretary of Treasury, Henry Morganthau, said, “We have tried spending money. We are spending more than we have ever spent before and it does not work. ... after eight years of this Administration we have just as much unemployment as when we started. ... And an enormous debt to boot!” Unemployment remained above 17% in 1939. Many FDR apologists argue the economy took another dip in 1937 because the administration cut spending. However, data shows spending only fell $600 million from 1936 to 1937; less than one percent of the nation’s GDP.

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