As the economy deteriorates and financial corpses continue to pile up and begin to rot, everyone from Tito the Builder and William Kristol to President-Elect Obama and his economic team are wondering: How big is big enough? Long gone is any pretense that the “free” market will right itself; we’re all Keynesians now.
We’re not into Great Depression territory just yet, but do we need a New Deal-sized stimulus to turn this ship around? A lot of smart folks have been brushing up on their New Deal history (in some cases revising New Deal history). According to my favorite source of economic knowledge and wisdom, Nobel Prize-winning economist Paul Krugman, FDR’s ambitious New Deal stimulus got the economy moving again, but it took a truly massive public works project, called World War II, to really get the economy back on track.
U.C. Berkeley economist Brad DeLong posted a fascinating set of graphs that offer great visual representations of public expenditures from pre-WWI through the Great Depression, WWII, and post-war reconstruction. What’s really shocking is how WWI and WWII expenditures dwarf the New Deal stimulus.
So will it take a World War-sized crisis to unify and mobilize the country into sufficient action?