Concerning the recent budget/debt battle, history is informative.
Under Herbert Hoover’s austerity program response to the Great Depression, unemployment spiked from 8.7 percent in 1930 to 24.9 percent in 1933. Unemployment then plummeted to 14.3 percent by 1937 under Franklin Roosevelt’s heavy government spending on job-creation programs (e.g., 1933 CCC, 1935 WPA). Concurrently, GDP rose 7.7 percent, 8.1 percent and a record 14.1 percent in 1934, 1935 and 1936, respectively.
The top income tax rate was raised from 25 percent to 63 percent in 1932, and to 79 percent in 1936, staying above 70 percent (90 percent under Harry Truman and Dwight Eisenhower) until drastically reduced under Ronald Reagan to near today’s rate. But worried about the increasing deficit after re-election in 1936, Roosevelt cut spending, whereby unemployment jumped to 19 percent in 1938. Government spent heavily on job creation during World War II, after which, despite 1945 debt being 123 percent of GDP (vs. about 75 percent now), the economy boomed like never before (http://bit.ly/AJlos). This spurred the private sector, completing recovery from the Depression with full employment and greatly reduced deficit.
Recent experience of European countries with high unemployment corroborates the same Democratic Party position: government austerity programs increase unemployment but government-funded job-creation in the short term is needed to lower unemployment.
Norm Luther
Spokane
