Last week, the Dow Jones Industrial Average cleared 16,000 points – the highest in its history – and it has well more than doubled since the Great Recession began. For obvious reasons, this is very good news for the economy, especially for those with the highest incomes. But as we all know, unemployment remains stubbornly high at around 7.3 percent, and the emphasis of reducing deficits instead of unemployment has unnecessarily and counterproductively impeded true economic recovery.
Sure, the American Recovery and Reinvestment Act, passed in early 2009 is responsible for creating or saving at least 3.5 million jobs. It has also prevented double-digit unemployment that still plagues many European countries. However, too many in Congress failed to keep up the momentum of creating jobs after the stimulus was passed.
The United States economy produces $15 trillion and by contrast, the stimulus plan cost $787 billion and was designed to last over three years. Many have complained that this figure is far too high or is wasteful spending.
The truth of the matter, however, is that this figure represents under two percent of the economy's total spending during this time period, which doesn't seem so bad after all. And the largest part of the stimulus package, over one-third, also included tax cuts instead of spending.
There are bright spots in the anemic recovery, notably the rescue of the U.S. auto industry, which has saved 340,000 jobs since 2009. But Congress's general inaction to stimulate the economy after the Recovery Act is the culprit for high unemployment even five years after the collapse of the big banks. Case in point, the failure to pass the American Jobs Act in September 2011, which would have created up to 1.9 million jobs.
Likewise, this year's rapid slashing of the deficit from 10.1 percent to 7 percent of GDP, the fastest decrease in 60 years, will likely contribute to maintaining high unemployment.
As President Obama said last week, "The American people deserve better than politicians who run for election telling them how terrible government is, and then devote their time in elected office to trying to make government not work as often as possible."
But unfortunately this is the reality of the current recovery – politicians refusing to acknowledge the role that the government can play in reducing unemployment and creating a stronger economy. In fact, we have seen it happen before.
There are essential lessons that the Great Recession can learn from the economics of the Great Depression – particularly where deficits are concerned. The common wisdom surrounding how the Depression ended says that World War II, rather than the New Deal programs, is what provided economic recovery – and this thinking is absolutely right.
What is often excluded from this explanation is the role government spending played in arming the United States for war and significantly reducing unemployment. For much of the Depression, deficits were modest and the sudden reigning in of government spending was what caused the recession in 1937.
Once there was a need to aid the Allies in Europe, the federal government started manufacturing guns, ammunition and tanks on a massive scale. Subsequently, in 1940, the federal deficit was roughly twice the GDP, which translates to $30 trillion dollars in today's market.
As George W. Bush knows, nobody cares about deficits when the country is at war and despite the massive economic relief such government spending provided, war was the only reason that the federal government could get away with such high deficits.
And the final result after World War II was not financial debilitation, but the strongest economy the United States had ever seen. The economy was sustainable and the prosperity gained from government spending lasted into the 1970s.
The stimulus helped to refurbish roads and create jobs, but there is still much work to be done in updating America's infrastructure. Rail systems need to be put into place, school buildings need repair, Internet access needs to be introduced in the country's most rural areas.
A lack of will to do these tasks is obviously not the problem, but rather, the problem is the failure to address unemployment while obsessing over deficits.
As the 2008 Nobel Prize laureate for Economics Paul Krugman writes in End This Depression Now!, "In the Great Depression leaders had an excuse: nobody really understood what was happening or how to fix it. Today's leaders don't have that excuse. We have both the knowledge and the tools to end this suffering."
Online Editor Ross Fogg is a College senior from Fayetteville, Ga.
Illustration by Mariana Hernandez
