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Recovery, Taxes, Government Spending and Astonishing Stupidity


Published on The Smirking Chimp (

Recovery, Taxes, Government Spending and Astonishing Stupidity

By Larry Beinhart

The current economy is routinely and universally referred to as the worst recession since the Great Depression.

It makes sense, therefore, to look back at government tax and spending policies during the Depression and what the results were.

1932 — Hoover raises [1] the t op tax rate from to 25 to 63 percent.

1933 — Roosevelt comes into office. He begins spending at the same time that new tax hike comes into effect. The Depression bottoms out.

1934 — Recovery begins [2]. The GNP rises 7.7 percent, unemployment falls to 21.7 percent.

1935 — New government spending [3] on public works and rural electrification. A push to strengthen labor and raise wages. New taxes through the creation of Social Security.

The GNP grows [4] another 8.1 percent, and unemployment continues to fall.

1936 — The top tax rate is raised [5] again. This time to 79 percent.

GNP grows a record 14.1 percent; unemployment falls even further.

1937 — Roosevelt is afraid of deficits! He cuts spending [6] for 1937.

There’s a new recession. It continues for a year.

1939 — The U.S. borrows [7], resumes deficit spending, this time on a military build-up. The recession ends.

1941 — America enters World War II.

In economic terms, it’s the New Deal on steroids. The top tax rate goes up to 91 percent [8]. Nonetheless, government spending is so high that by 1945 the deficit is 123 percent of GDP [9]. Unemployment is ended by employing 16 million people directly in the armed forces and millions more are employed producing war material and supporting the military.

The Great Depression is finally over.

When taxes were raised the economy improved. Every time. Deficits had no negative effect on the economy. Indeed, when deficits were at their highest, the economy boomed.

After spending was cut — to balance the budget — a recession immediately followed. When taxes were raised and government spending resumed — with deficits — that recession ended.

When taxes were raised again, and government spending went sky high, the Great Depression finally ended.

So here we are. We refused to raise taxes. The recession continues. Now, we’re going to cut spending.

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