According to a recent poll, most Americans think government deficit spending during recessions is wrong because it increases debt. Economic experience tells us otherwise.
Businesses don't produce what they can't sell, nor invest if they don't have customers. Repeated attempts to spur business investment, from low interest rates to arm-twisting, have repeatedly proven fruitless during recessions.
Over 70 percent of business sales are to households. Household spending depends on household income, mostly from wages and salaries. During economic downturns, more unemployment means households earn and spend less.
Only government has the obligation and ability to compensate for drops in household spending. From 1940 to 1942, the nation's debt increased by nearly 70 percent as the government borrowed heavily to pay for WW II materials. But this deficit spending also boosted GDP by half and decreased unemployment from 14.6 percent to 4.7 percent.
Deficit spending was used effectively in each of the last eight recessions. The current one closely mirrors that facing President Reagan when he took office in 1981. During Reagan's first three years, unemployment rates were 7.6 percent, 9.7 percent, and 9.6 percent, dropping to 7.5 percent in his fourth year. In President Obama's first three years, unemployment rates were 9.9 percent, 9.4 percent, and 9.0 percent. In both periods the national debt increased by about one-half.
The $787 billion stimulus package enacted in 2009 stopped the economic free-fall, but was too little to fuel a robust recovery. We needed a stimulus nearly twice as large.
We should heed President Kennedy's words after deliberately incurring a deficit to fight the recession he inherited when taking office in 1961: "What is important is not whether the budget is in balance but whether the economy is in balance."
Businesses don't produce what they can't sell, nor invest if they don't have customers. Repeated attempts to spur business investment, from low interest rates to arm-twisting, have repeatedly proven fruitless during recessions.
Over 70 percent of business sales are to households. Household spending depends on household income, mostly from wages and salaries. During economic downturns, more unemployment means households earn and spend less.
Only government has the obligation and ability to compensate for drops in household spending. From 1940 to 1942, the nation's debt increased by nearly 70 percent as the government borrowed heavily to pay for WW II materials. But this deficit spending also boosted GDP by half and decreased unemployment from 14.6 percent to 4.7 percent.
Deficit spending was used effectively in each of the last eight recessions. The current one closely mirrors that facing President Reagan when he took office in 1981. During Reagan's first three years, unemployment rates were 7.6 percent, 9.7 percent, and 9.6 percent, dropping to 7.5 percent in his fourth year. In President Obama's first three years, unemployment rates were 9.9 percent, 9.4 percent, and 9.0 percent. In both periods the national debt increased by about one-half.
The $787 billion stimulus package enacted in 2009 stopped the economic free-fall, but was too little to fuel a robust recovery. We needed a stimulus nearly twice as large.
We should heed President Kennedy's words after deliberately incurring a deficit to fight the recession he inherited when taking office in 1961: "What is important is not whether the budget is in balance but whether the economy is in balance."
