Why Obama's Economic Policies Are Dead Wrong - A Real life Example In Pictures

We have talked about the many economic failures, in both strategy and execution, of the Obama administration over the past few years. These failures have resulted in heated and divisive class warfare rhetoric, skyrocketing national debt, high unemployment and underemployment, and abominable failures of economic programs:

• Failed economic programs and projects - these include, but are not limited to, Cash For Clunkers, Cash For Caulkers, Cash For Appliances, bank and auto company bailouts, the $800 billion stimulus program, Solyndra, and a number of other failed alternative energy programs.
• Regarding the massive and failed economic stimulus package, this administration claimed that unless it was passed immediately, the unemployment rate in this country could get as high as 8%. The package was passed and employment soared about 25% higher than 8%.
• Divisive class warfare - Obama constantly harps on the need to tax the wealth in this country even more, blaming them for the skyrocketing annual trillion dollar deficits this administration has incurred. However, we have easily proven that even if you tax these Americans' earnings at 100% or confiscate all of their assets, it will have very little impact on the economic conditions in this country, quite possibly making them even worse while dividing the country along economic lines.
• Under the Obama administration, the recovery in unemployment and under employment after the last recession has been among the most anemic in the economic history of the United States.
• In the wake of of failed economic programs, divisive class warfare, and stubbornly high unemployment, the Obama administration has proceeded to run up the national debt much faster and much more dramatically, with little in return, than any President in the history of the United States.

All very good reasons to conclude that this administration has no clue when it comes to economics. Which is a shame since if you look back in our history, you will find a classic example of how to manage and grow an economy out of a crisis mode with favorable results across all major economic indices.

The example comes from the 1940s, when Harry Truman was President, certainly a time of major crisis where the United States and the rest of the world were involved in World War II fighting. Economies and lives were turned upside down as the country went into a war footing for the first half of the decade and then needed to convert back to a peace time economy in the second half of the decade.

Consider the following graph (you can double click on this and the following graphs to get a larger, more detailed view):

This is a graph of the size of the Federal government's annual spending volumes in the 1940s and 1950s. As you see, spending had to ramp up in the early 1940s to accommodate the massive war spending the Federal government needed to do to defeat the Axis powers.

However, look what happens when the war ends in 1945 (after the vertical line). Very quickly, Federal government spending drops dramatically (about 60%) as the government terminates its war spending. I do not believe in the history of the country have we seen such a dramatic and speedy reduction in Federal government spending.

If Obama was President in 1945, I doubt this would happen. Today, he and his political supporters refuse to seriously consider reducing government spending, insinuating that it would push the economy back into a recession. They have this misconception that unnecessary and wasteful government spending is necessary to keep the economy going. [Note: recall that our extensive analysis in this blog's past posts has shown that at least $500 billion in Federal spending a year is lost to waste and criminal fraud in government operations such as Social Security, Medicare, etc.] 

What happened to the economy in the late 1940s when the Federal government made such drastic reductions in government spending? According to Obama's economic strategy, that would have had catastrophic effects on the economy.

Let's first look at the unemployment rate:

Yes, at the same time that the Federal government dramatically reduced spending, the unemployment rate did kick up a bit. This would seem to add some credence to Obama's theory that government spending needs to stay high and wasteful to keep the economy strong and growing.

In fact, there were some leading economists of the time that urged Truman to keep the war factories humming via government spending, making munitions and weapons for no purpose, just to create busy but useless work for people. This activity would create no viable economic progress since the output of the munitions and weapons factories would never be used, the war was over, but these economists, like Obama today, had this misconception that spending and wasting government money for no reason was good economic policy.

But consider a few facts from the above chart:

• Although unemployment did rise at the end of the war, it did not get above 4% for the immediate years after World War II and probably averaged 4-5% over the ten years after the end of the war, despite an initial, massive slashing of Federal spending.
• In 1945, the U.S. population was only about 139 million and at least 10% of that population was coming back into the civilian workforce after serving in the armed forces. Thus, the economy was able to absorb a very large number of new workers in the face of slashed government spending with an unemployment rate of less 4%, an extraordinary accomplishment.

Was this wonder of employment gains immediately after the war a result of massive government spending? Obama says we cannot reduce spending and have to run up horrendous deficits in order to keep the economy out of a recession. See what happened to deficits in the 1940s:

After the massive deficit spending during the early part of the 1940s that was needed to finance the war effort, Truman's Presidency not only slashed government spending, and the taxes that went with it, Truman also managed to very quickly go from a deficit riddled Federal government to a Federal government that was generally in balance, revenue about equal to spending, actually running a budget surplus in some years.

So far, Truman was able to succeed doing the exact opposite of what Obama is doing: dramatically reducing government spending and taxes, running a balanced Federal budget, and absorbing millions and millions of workers into the civilian part of the economy with minimal increase in unemployment.

One final view: did all of these efforts and results negatively impact the economy health of the country? Consider this last graph:

This GDP graph is over time, during and after World War II. As you can see, there is a little flatness in economic growth in 1946 as the nation adjusts back to a peace time economy but very shortly begins a strong growth pattern into the 1950s. Thus, dramatically slashing and reducing government spending did not negatively impact the growth and size of the nation's economy. In other words, we do not need a giant Federal government bureaucracy to have a healthy and growing economy.

So let's review:

1. Truman slashed taxes and government spending after the war ended, Obama wants to continue to raise taxes and government spending.
2. Truman ran a balanced Federal government budget after the war ended, with some budget surplus years, Obama runs massive Federal government deficits.
3. Truman's economic policies absorbed well over ten million workers into the economy that was much smaller in a nation with far fewer people, Obama's economic policies have resulted in long term unemployment and under employment for well over ten million workers.
4. Truman's economic policies resulted in strong overall national economic growth, Obama's economic polices have resulted in weak overall economic growth.
5. And most importantly, Truman's economic polices severely reduced the role of government in our lives and economic well being, Obama's policies have dramatically increased the Federal government's involvement in our lives and economic well being, resulting in lost freedom and liberty.

Unfortunately, the Obama administration and his supporters have not looked at this simple pictorial representation of a real life economic success story. It continues to cling to the false hope and faulty economic assumption that government has to be the center of economic activity and growth in this country, an assumption that is becoming increasingly viewed as wrong when you consider our anemic economic growth, failed economic polices of this administration, and long term chronic unemployment.

An old saying goes as follows: "When you are in a hole, stop digging." Obama needs to stop digging with his failed economic policies, programs, and strategies and borrow a ladder from Truman to get us out of our ever widening, ever deepening economic hole. Just look at the pictures.

On final note: as an FYI, all of the underlying data that went into the above graphs comes from official U.S. government sources. At no point were Republican Party, Tea Party, Fox News, or any other data sources used.

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ttp://www.unitedstatesofpurple.com/

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