Relevant History – Economics and the Great Depression

Ray Medeiros has written an article over at Politicususa arguing that tax cuts for the wealthy don’t lead to job creation. Of course, this is an argument that goes back to the very heart of the Keynes vs. Supply Side debates of the last century. Keynesianism arose out of the depression upon the economic theories of John Manyard Keynes, and set the stage for modern macroeconomics. The theory basically stated that by artificially increasing demand through government stimulus, the economy would recover. For the wealthy, that required higher tax rates that would force the redistribution of their wealth to the poor, indigent, and otherwise desperate masses that were the demand side of the problem. Supply siders suggest that by lowering tax rates on the wealthy they will have both the will and the capital to invest in new enterprises. While it is relatively simple to see the benefits of a direct stimulus to large groups of people, the numbers on supply side economics are more difficult to see, and led to the moniker “trickle down” so popular amongst the left during the 1980s.

In real terms, the issue is over the type of society one wishes to have. Democracy vs. plutocracy. The nineteenth century republic functioned largely as a plutocracy with wealth being an important factor in politics. The relief valve of “moving west” that existed during the time had gone by 1890 bringing with it a change in politics toward progressivism. Progressivism is only necessary in a society of changed or diminished opportunity. The great bounty of nineteenth century America, where land was practically free, disappeared with the closing of the fronteer, and with it, the opportunity to escape the unfair reality of the plutocratic east.

Are we right to worry about wealth disparity approaching or exceeding levels of the 1920s? Only so far as the U.S. economy is still a consumer based economy. The 1930s were only the result of a compounded problem of over extended credit leading to a collapse of the consumer side of the economy. When they couldn’t buy consumer goods on credit, the manufacturers of consumer goods laid their staffs off. Those who formerly worked to produce radios joined the ranks of the unemployed, and stopped buying products. Eventually it led to a collapse in all sectors of the economy because consumer demand drove the growth of the 1920s, and all subsequent real growth since.

We can choose to ignore the relevant history of the last century. We can choose to give in to an ideological need to say “a person’s work is their’s alone” and to keep the government off our collective backs. The choice then is smaller plutocracy with many more poor, and lower consumer demand. Its as simple as that.

Share via email
This entry was posted in history sucks, Relevant History and tagged , , , . Bookmark the permalink.
  • Don

    Is the choice really so simple, or are there extremes on both sides and shades in between?

    Consider the current Keynes approach of taxing and then giving entitlements for basically nothing in return, and contrast this with the work programs of decades ago where the government actually got something back for the paychecks they were handing out. IMHO, it is hard to defend the entitlement mindset when the national infrastructure is crumbling around us.

    Although the WPA was criticized for sponsoring a number of programs that critics said were unnecessary, there are a sufficient number of bona fide infrastructure problems in this nation requiring attention that a version of the program might have made a lot more sense than the economic stimulus pork packages.

    I’ll admit to you that I am a supply sider, but if the government must pump money into the economy in a Keynesque fashion, there should at least be some intellect in the fashion by which they do it.

  • Steve

    I heartily agree. Entitlement programs for people expected to live a good long while are essentially money for nothing programs. The original purpose of social security was to provide money to people who simply had to spend it, and it does have a stimulative effect in that fashion. The problem today is presentation of money-for-work programs. The WPA hired people. It wasn’t an incentive for private industry to hire people, at least not in the way that today’s “stimulus” has been spent. Public funds spent on public projects with real tangible results (dams, electrification, roads) might just be a popular and necessary political compromise.