More election thoughts

An IBD (Investor's Business Daily poll taken November 1-4 said that 53% of Americans would prefer to solve the budget problems at the federal level by cutting things rather than increasing taxes.  They also do not seem to believe that more economic "stimulus" will help move the economy forward.

Those thoughts were revealed on Tuesday when the GOP captured at least 60 seats in the house and move 680 seats in state legislatures (the previous record there was 472). So why hasn't the massive infusion of dough moved economic activity more.   After all if you buy the Keynesian interpretation of the responses in the Great Depression all those alphabet agencies that FDR created actually moved the economy forward.

There is currently considerable research that suggests that the standard interpretation of our movement out of depression in the 1930s is simply wrong.   If you track unemployment we did not begin to move out of high double digit unemployment until World War II.  And, indeed, many of the measures enacted by Roosevelt may well have reduced certainty and thus slowed economic recovery. For example the most readable interpretation of that view comes in Amity Shales The Forgotten Man: A New History of the Great Depression.   But there is plenty of other research that brings the interpretation into question.  Robert Higgs (Crisis and Leviathan: Critical Episodes in the Growth of American Government (A Pacific Research Institute for Public Policy Book) has a couple of books on the issue.

But even if you buy the standard FDR as savior interpretation, one wonders why all that dough we have spent this time has not had a noticeable effect.   Again there are a couple of interpretations.  On the left, (Paul Krugman for example) some have argued that we did not spend enough.  From my point of view, that is just looney tunes.  

The alternative view could be that the situation is different.  For the last 40 years or so we have floated around 33-35% of GDP as a portion of federal tax revenues/spending.  That compares to about 13% at the start of the depression. After the Depression and WWII there Federal share of our GDP was about a quarter.  From Nixon through Bush that percentage rose to the low to mid thirties. The first year of the Obama administration that number jumped to well over 42%.   One response could be that the effect of a reduction of the private sector for a temporary period when the economy is less than a fifth might have a more significant effect than when it is close to two fifths.   American voters may realize the diminishing effects of infusions of borrowed money better than the political class.