The Socialization of America
World War II and the necessary costs of reconstructing all of Europe along with East Asia to restore global order left unpleasant memories with American leaders, who had been forced to bear a large portion of these costs. During the conflict, Congress had elected to use a newly born Keynesian philosophy that allowed it to spend as much money as possible in whatever industry necessary to stimulate the country out of depression and into a victory in both hemispheres. Out of this scramble to industrialize and produce more than ever before were born many government programs that have survived to date: the SEC and FDIC still regulate the American banking while Social Security, Medicare, and Medicaid now take up a majority of the federal government's fiscal budget. In addition, many temporary public works projects, such as Civilian Conservation Corps and the Works Progress Administration, were created in response to both the Great Depression and the recent financial crisis to try and stimulate a slow economy. All of these programs and agencies were contained in the New Deal, a social spending policy enacted by Franklin Roosevelt that ultimately resulted in greater federal regulation of the economy and did create enormous temporary growth.
However, a brief and pronounced downturn in 1937-38 permanently opened an avenue for debate among economists over whether the state should intervene to guide an economy in the right direction. Even economists who were in FDR's cabinet that supported the New Deal strongly opposed the idea of government spending an economy out of recession, in addition to the deficits that inevitably followed. These thinkers and their contemporaries argue that while temporary spending can benefit the economy if used correctly, long term neglect of the incurred costs will eventually lead to unmanageable levels of debt and damage long-term growth more than the initial burst of spending could have ever produced. There is indeed much evidence to be found in support of this school of thought, especially looking at the state of Europe today; sustained periods of big deficits and lavish public and welfare spending have slowed down production in these countries and threatened to tear apart a once strong economic union.
Critics of the US government's economic policy often attribute most of their grievances to a single institution: the Federal Reserve. Created in 1913 with the mission of stabilizing prices and maintaining full employment, it controls the money supply by essentially printing money and stuffing it into bank vaults when the economy is struggling. Since its purchase of toxic mortgages following the 2008 crisis and subsequent bailout of the banking and automotive industries, ordinary citizens have felt angst that they were not helped and big corporations were. More recently, people have also argued that by injecting more cash into the world economy, the Fed devalues the assets of everyone who uses dollars. This has provided a strong case against the continuation of quantitative easing, which seeks to increase production by simply dumping more paper into the system. This has become the government's favorite form of taxation, since politicians do not have to actually raise rates and can enact populist policies in order to get reelected and spend even more money.
In general, the world has seen a shift from strict fiscal austerity and balanced budgets to a more liberal approach to debt, especially from World War II to the present. The United States in particular has benefited since at that time it had imposed an international financial system based on the US dollar. This creates more demand for the dollar from other countries such as China, which holds over $1 trillion in dollar foreign exchange reserves, supporting its value and therefore the consumerism of Americans as well. However, eventually trade and budget deficits will bring a nation's excesses back to order in way way or another, as both Europe and America have learned in the past two centuries. Keynesians, conservatives, Democrats, and socialists alike ultimately have to come to terms with the fact that a society cannot spend more than it produces.
However, a brief and pronounced downturn in 1937-38 permanently opened an avenue for debate among economists over whether the state should intervene to guide an economy in the right direction. Even economists who were in FDR's cabinet that supported the New Deal strongly opposed the idea of government spending an economy out of recession, in addition to the deficits that inevitably followed. These thinkers and their contemporaries argue that while temporary spending can benefit the economy if used correctly, long term neglect of the incurred costs will eventually lead to unmanageable levels of debt and damage long-term growth more than the initial burst of spending could have ever produced. There is indeed much evidence to be found in support of this school of thought, especially looking at the state of Europe today; sustained periods of big deficits and lavish public and welfare spending have slowed down production in these countries and threatened to tear apart a once strong economic union.
Critics of the US government's economic policy often attribute most of their grievances to a single institution: the Federal Reserve. Created in 1913 with the mission of stabilizing prices and maintaining full employment, it controls the money supply by essentially printing money and stuffing it into bank vaults when the economy is struggling. Since its purchase of toxic mortgages following the 2008 crisis and subsequent bailout of the banking and automotive industries, ordinary citizens have felt angst that they were not helped and big corporations were. More recently, people have also argued that by injecting more cash into the world economy, the Fed devalues the assets of everyone who uses dollars. This has provided a strong case against the continuation of quantitative easing, which seeks to increase production by simply dumping more paper into the system. This has become the government's favorite form of taxation, since politicians do not have to actually raise rates and can enact populist policies in order to get reelected and spend even more money.
In general, the world has seen a shift from strict fiscal austerity and balanced budgets to a more liberal approach to debt, especially from World War II to the present. The United States in particular has benefited since at that time it had imposed an international financial system based on the US dollar. This creates more demand for the dollar from other countries such as China, which holds over $1 trillion in dollar foreign exchange reserves, supporting its value and therefore the consumerism of Americans as well. However, eventually trade and budget deficits will bring a nation's excesses back to order in way way or another, as both Europe and America have learned in the past two centuries. Keynesians, conservatives, Democrats, and socialists alike ultimately have to come to terms with the fact that a society cannot spend more than it produces.