REFLECTIONS

Posted on May 15, 2011

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SUCCESSFUL ATTACK ON JOBLESSNESS

Regarding “Quantitative easing?”  “I’m fed up with the Fed blind faith in spending which has been tried before and failed before,” says Thomas Sowell. Wrong!

Sowell does not believe that Franklin D. Roosevelt administration’s deficit spending reduced unemployment. Well, something did.

When Roosevelt was inaugurated the first time in 1933, the U.S. unemployment rate was 25 percent. In 1937, it was less than 15 percent. Following an attempt to balance the budget, it went back to almost 20 percent by 1938. In November 1941, with deficit spending to prepare for war, unemployment was reduced to 10 percent.

The Japanese bombed Pearl Harbor, prompting an immediate declaration of war against the Axis powers and an enormous increase in deficit finance. By June, 1942, deficit financing for the war economy had reduced the unemployment rate to less than 2 percent. The U.S. economy was dangerously “over employed.” The Great Depression actually ended in a matter of weeks entirely due to government involvement.

History proves that deficit spending works during high unemployment, and to try to balance the budget at such times defeats the purpose of reducing high unemployment.

The Sowell term “quantitative easing,” i.e. “easy money,” should come under the heading “monetary policy,” not “fiscal policy’ as Sowell supposedly uses in his column. He also implies the Federal Reserve is a government agency (it is not) and therefore confuses the two ways known to reduce unemployment since 1936 publication of John Maynard Keynes’ “The General Theory of Employment Interest and Money.”

Like in 1937, there are those  in a certain political party who said we must cut deficit spending immediately, and we must balance the budget now. We are in a high unemployment situation. This party is wrong to push for huge cuts now, and failing to raising taxes to reduce the national debt.

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