So I was standing in line to buy produce behind two firefighters debating economics, specifically, the relative merits of stimulus versus austerity as a strategy for responding to our current global economic downturn. The firefighter on the left (both physically and figuratively) took the Keynesian tack, pointing to the role of FDR's New Deal in helping our nation climb out of the Great Depression, to which the firefighter on the right responded with derisive laughter.

"FDR prolonged the Great Depression," the pro-austerity firefighter asserted authoritatively. "Everybody knows it was World War II that finally pulled us out of the Great Depression."

It's a bullshit right-wing meme that's become increasingly common over the past few years, and I would've jumped in and said so if not for the fact that at that moment cashiers opened up for the both of us (and, you know, if the righty didn't have 10 inches on me).

First of all, World War II represents the shining example of Keynesian stimulus, an unprecedented explosion of deficit-financed federal spending that catapulted GDP growth to record highs. So to offer massive war stimulus as a refutation of the economic benefits of the New Deal's relatively modest stimulus is just plain stupid. Second, as the chart below shows, New Deal stimulus spending spurred several years of impressive GDP growth at a rate that would make China blush:

GDP.jpg
  • US Bureau of Economic Analysis

Yes, that's 13.1 percent GDP growth in 1936. FDR took office in 1933, near the bottom of the Great Depression, and with the exception of the recession of 1938, presided over years of spectacularly robust economic growth. The fact that it took so long for the nation to fully climb out from the Great Depression is a testament to how far it had to climb, not to a failure of FDR's New Deal policies.

What is so amazing about the current stimulus vs. austerity debate is that we're having a debate at all. If the contrasting policies and results of Hoover vs. FDR during the Great Depression hadn't settled it, the contrasting policies and results of the Great Recession should have. In nations like the US where mild stimulus was attempted, we've seen a mild recovery. In Europe where austerity won the day, their economies are mostly spinning down the drain.

It's exactly what Keynesian economics predicts, and exactly what happens.