The public doesn't exactly want an interminable, crushing depression, but they are definitely reluctant to do the things needed to avoid one. They would rather have tax cuts that don't stimulate than spending that does – an entirely natural expression of the Paradox of Thrift. And whatever spending is to be done, they certainly don't trust the government to do it. The harder President Obama works to persuade them, the more his approval ratings sink.
We've been there before. It was only in 1933, with a quarter of the population destitute and grass growing in the streets, that people were ready to contemplate real departures from business as usual. But even then, resistance to extensive government intervention continued strongly enough to slow recovery a good deal.
In Germany, and even more so in Japan, authoritarian governments that could afford to pay much less attention to public concerns were notably more successful in returning to full output and employment. In doing so they inadvertently provided what became the key to ending America's economic troubles – a "good war."
Yes, as Paul Krugman observes, "The Great Depression in the United States was brought to an end by a massive deficit-financed public works program, known as World War II." [The Return of Depression Economics and the Crisis of 2008, W.W. Norton, 2008, p. 71.] In fact, the war had a number of remarkable effects. So far as I know, no one called for it to be fought by private enterprise rather than being left to the government. And if there were those who wanted their their taxes to be cut so they could be left to deal with the Japanese and Germans by themselves, they have not come to my attention. Not many worried about "waste," except as it might affect the war effort itself. The prospect that the overwhelming majority of all that output would either be destroyed during the war or immediately reduced to scrap when it was over seemed to trouble very few. The government spent profligately – and there was employment for all.
Perhaps President Obama is going about this all wrong. Instead of asking us to spend money on things like schools, energy independence, transportation, or essential services, maybe he should be looking for a nice war.
Perhaps he won't have to look all that far. There is good evidence that the Depression played a crucial role in bringing the Nazis to power in Germany, as well as militarists in Japan. That is to say that the Depression itself led to the war that ultimately cured the Depression. It's perhaps not quite what those who sing the praises of the self-correcting capacity of the economic system have in mind, but it is one way.
Could our collective aversion to government action prompt a depression so deep and lengthy that it will tip other nations into starting another world war? Do we truly want to find out?
Copyright © 2009 by William D. O'Neil
9 February 2009