Road to 'Recovery'? Are We Ignoring Lessons From the Great Depression?

By Noel SheppardAssociate Editor,

While the Obama administration garnered support for its soon to be enacted recovery plan by depicting current economic conditions as the worst since the Great Depression, they mysteriously neglected to inform the public specifically what ideas from that period would be replicated and which would be avoided at all costs.

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In fact, the entire subject of what worked during the 1930s and what didn't was oddly avoided.

Without question, a comprehensive and impartial examination of that era would certainly identify actions that either didn't improve the situation or yielded benefits that were outweighed by the costs. Though conceivably a hot political potato, a gathering of the top economic minds in our country to analyze every federally mandated scheme implemented after the 1929 stock market crash and prior to the start of World War II seems like a slam dunk.

Imagine the benefit of such a detailed analysis revealing the actual dollars invested in every program back then with exactly how many jobs were produced, how much they paid, how long they lasted, and what the specific impact was on the Gross Domestic Product.

Wouldn't that be an invaluable tool for us to use today in creating a stimulus package that gets us out of our current condition rather than potentially worsening it and/or costing more than is necessary? Isn't this the exact problem-solving formula used by well-run companies, professionals, doctors, scientists, parents and virtually any adult when faced with a dilemma similar to one they experienced in the past?

As policymakers, federal reserve officials, and economists have been saying since September's financial implosion that there are many similarities between what confronts us today and what we went through in the 1930s, a blueprint is available for us to effectively navigate the current minefield. This seems particularly important given how long the Depression lasted despite all the money thrown at it.

Total federal outlays in 1929 were $3.1 billion. By 1940, they tripled to $9.5 billion.


But that doesn't tell the whole story, for throughout most of the 1920s, federal spending was consistently around $3 billion per year. Though largely unimaginable today, prior to the Depression government spending was actually quite low except when the nation was at war.

In 1929, total outlays were less than 3 percent of GDP. By 1940, this had exploded to almost 10 percent.

Even more troubling, the total federal debt outstanding, which had been steadily declining since the end of World War I, ballooned from $17 billion in 1929, or 16 percent of GDP, to $43 billion in 1940, or 44 percent of GDP. And yet, unemployment was still about 15 percent, and the GDP was still under what it was before the Depression started.

As such, there was clearly a lot of money spent in the eleven years following Black Friday that had little to no economic benefit.

Do we want to repeat that? Wouldn't it be desirable to create a plan that used only the effective measures employed back then while avoiding the ineffective ones so that we don't spend trillions of dollars to end up still being in a recession ten years from now? Wouldn't that especially be prudent given the current staggering size of our debt and deficit before all this additional spending began?

Consider that in fiscal 2008 total federal outlays and the amount of outstanding debt were already 20 and 70 percent of GDP respectively. What that means is such correlated spending and debt levels beforeTARP and the newly approved program were enacted were significantly higher than aftereleven years of Depression era stimuli.

Doesn't that make it imperative for us to spend more wisely this time?

As it seems quite likely the 2009 deficit could approach $2 trillion, it is possible that our total outstanding debt will surpass GDP in the next several years. This would be the first time this occurred since shortly after World War II which is a rather ominous development for it seems doubtful we'll see the precipitous drop in spending that occurred after Japan surrendered.

In 1945, total outlays were almost $93 billion. In the next three years this declined to $30 billion setting up unprecedented budget surpluses which allowed debt to be reduced.

As a repeat of that seems impossible any time soon, we should be far more diligent about how we spend our stimulus dollars today making darned sure we're not repeating bad decisions made during the Depression.

Unfortunately, in the mad dash to get a stimulus package enacted as quickly as possible -- so fast no members of Congress read the final bill before it was voted on!!! -- absolutely no such examination as the one described above was accomplished, and the public was given absolutely no assurances we've learned anything from our past mistakes.


Is it because the Party currently in power has a great deal of time and money invested in furthering the belief that Franklin D. Roosevelt was the greatest president of the 20th Century, and despite our victory in World War II, any analysis of his Depression policies might remove some of the luster from his image?

Let's hope this isn't the reason for the irresponsible negligence on display as this stimulus bill was crafted and approved for that would mean preserving one man's legacy was actually more important than saving the economy.

Noel Sheppard is associate editor of the Media Research Center's He welcomes feedback at