Tuesday, September 28, 2010

Conservatives Don't Understand Stimulus Redux

Reading Krugman's pieces about WWII's effect in ending the Great Depression, I'm reminded of something. Conservatives who don't like Keynesian demand-side stimulus often point to the Great Depression as evidence. "Look," they say, "it wasn't the New Deal that ended the Depression, it was World War II! QED!"

Here's the thing. Putting aside FDR's early austerity and the actual effect of the New Deal, World War II was Keynesian demand-side stimulus on a massive scale! If we had merely built all those tanks and boats and driven them off a cliff into the ocean, it would have been just as stimulative. The government spent massive amounts of debt-financed money on paying people to build things! In this case, it was tanks and guns that ended up ridding the world of fascism (good!) and causing mass destruction and human suffering (bad!).

The point is that massive debt-financed spending on building bridges and high-speed railways right here in America is stimulus in the exact same way. And it actually will actually cause more prosperity!

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