Thursday, August 11, 2011

Deficits, Debts and Taxes

The deficit, which has everyone freaked out, is running about 10% of GDP. The people who are freaking out seem to forget that in 1942, government spending created a deficit on the order of 30% of GDP in the ramp up for our full and active participation in WWII. (The Debt in 1942 was about 120% of GDP while current Debt is about 110%.) In 1943, government spending was not significantly lower (as a percentage of GDP) than in 1942.

People like to say that WWII got us out of the Depression, and it did ... but it wasn't Hitlers spending that did the trick ... it was our government spending that fired up our ship yards; it was our government spending that converted The American Seating Company in Grand Rapids, MI from making folding chairs and cast iron theater seat frames to making B-17 bombers. Our government spending paid (through military orders) for companies to hire hundreds of thousands of people - nay! millions of people - who in turn bought groceries, shoes and clothing from local merchants causing them to hire more clerical help, causing the merchants to place more orders with their suppliers which caused their suppliers to hire more workers to produce more goods ... because there was demand. I wonder how a Balanced Budget Amendment would have worked out for us if it had been passed in 1941. How's your German? Japanese?

By 1946, at the end of the war, the deficit that had been running at 25-30% of GDP reversed and became a surplus - because government spending at previous levels was no longer necessary and GDP had increased astronomically. We became a manufacturing powerhouse and an export giant in a world where all of our competitors had been devestated. The deficit had moved to surplus in the space of less than a year. Eisenhower used that surplus to initiate the Interstate Highway System in the early 1950s. He used to people's money to do something for the common good, something that benefited individuals and corporations and still does to this day. (Incidentally, one of the specifications of the Interstate Highway System was that it could double as landing space for military aircraft in the event the threat from the USSR came home to visit us. Ever wonder why those Interstate lanes are separated from each other as much as they are throughout the country?)

I find it interesting to hear so many so-called Conservatives long for those simpler, idyllic days of the 1950s and 1960s when there was full employment and dad made enough money from his job that he could buy an affordable house while mom stayed home and took care of their 2.3 kids. They long for those wonderful days when inflation was less than 3% and there was a job for anyone that wanted one.

I find myself asking, why are they so reluctant to support a tax structure that made those days possible?