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Where Is the Economic Leadership from Washington?

SwitzerlandSamantha Bowers, International School of Berne
August 9, 2011

OPINION

Recently the US government decided to raise the debt ceiling. Usually this is a routine affair. The debt limit was created in 1917 when Congress allowed the treasury to borrow money to participate in WW1. Prior to that congress was required to authorize individual projects. Since 1962 the debt ceiling has been raised 74 times. Never has there been the political divide that exists presently. Government is built on compromise. The current situation does not seem to allow for much compromise and in the eyes of financial entities and other countries this does not bode well for the future of the United States.

In various forums there are many debates on which economic path is best. If you are a believer in Keynesian Economics you would support active government intervention which is the best way to make sure there is economic growth and stability. One would think this is the best way to go now, but in the current political climate it is not possible. Republicans are looking to stop any increase in spending while cutting the deficit at the same time. History shows us that this does not work very well. Typically, in the US, Republicans and for less government and promote big businesses and the Democrats support a larger government and are more concerned with individual rights of people.

The US entered into a Great Depression after the stock market crash in 1929. Republican Herbert Hoover was the President. Hoover became very unpopular in the US and that led to the election of Franklin Delano Roosevelt (FDR), in 1932. FDR was the first president to ever be elected to four terms as president. He is credited with navigating the US through its most challenging economic times. Lets look back to the recession of 1937-38. The economy had improved greatly since the market crash of 1929, and some of President Roosevelt’s advisors had recommended spending cuts to balance the budget. The results were terrible. The economy entered a 13-month recession where unemployment jumped to 19%, manufacturing output fell and industrial production declined by as much as 30%. As the unemployment rose, consumer spending declined which led to further cutbacks in production. In order to come out of the recession President Roosevelt sent a large scale spending program to congress. It was approved and the economy recovered.


It appears, based on history that the US will follow the same path as the 1937-38 recession. It has been proven that targeted government intervention will improve the economy. This is what is needed today. The US needs to re-build America. A lot of the infrastructure projects that were completed in the 1930’s, 40’s and 50’s are in need of repair. What better way to jump start the economy than by approving a spending bill directed at the rebuilding of the US roads, tunnels and bridges.

Unlike during the Great Depression, the US economy is intertwined globally. The changes in the market in the US affects the markets globally and vice-versa. The instability in the European Union is sending ripples through the US markets. First it was Greece, Portugal and Ireland that caused unrest in the markets. Now larger economies like Italy and Spain are struggling.

This is a time for great leadership. Let’s hope that the world leaders can convene and come up with a strategy to get out of this impending storm. If not, it will be a very long time before the western economies recover.

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Tags: washington, economics, usa

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