FDR’s “second” New Deal interfered with the recovery and caused unemployment to rise.

The start of World War II ignited world-wide demand enabling the US economy to overcome the “second” New Deal, and the recovery resumed at an accelerated pace following the creation of a war economy.

You might also want to look at the defense/non-defense spending by the fed 1942-1946 v today.

The “New Deal Part 2″ on your chart denotes the point at which FDR attempted to cut spending and balance the budget. We need to be intellectually honest. The New Deal, while controversial (and ultimately unconstitutional in some respects) did produce positive results. How can we argue that a 10-15% reduction in unemployment over a five year span is a failed policy?

Government spending is an important component of GDP in extreme crisis situations; trade balance, investment, and consumer spending are less reliable under these conditions. You are absolutely correct that government spending can’t be the only facet of a stimulus plan, but it should comprise a large part of the early stages. Once significant progress is made, the market should take care of the rest. So I say pass the stimulus, but there had better be oversight and accountability for every red cent.

By 1935 the Nation had achieved some measure of recovery, but businessmen and bankers were turning more and more against Roosevelt’s New Deal program. They feared his experiments, were appalled because he had taken the Nation off the gold standard and allowed deficits in the budget, and disliked the concessions to labor. Roosevelt responded with a new program of reform: Social Security, heavier taxes on the wealthy, new controls over banks and public utilities, and an enormous work relief program for the unemployed.

In 1936 he was re-elected by a top-heavy margin. Feeling he was armed with a popular mandate, he sought legislation to enlarge the Supreme Court, which had been invalidating key New Deal measures. Roosevelt lost the Supreme Court battle, but a revolution in constitutional law took place. Thereafter the Government could legally regulate the economy.”
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So what more can we learn from this little experiment? In no particular order:
- FDR’s “New Deal” made things worse, rather kept things worse longer than they would have without massive government intervention (h/t to the Hughes Supreme Court for giving de-Federalizing our economy).
- Social Security system, as it pretty much still is today, except it is now longer viewed as “supplemental” retirement income and recipients are paid by future generations (vice their own contribution)… read “multi-billion dollar ponzi scheme”.
- The economic “boom” following WWII was a result of there being a profound lack of “competition” around the world. The Allies flattened the Axis powers.

If President-elect Obama really wanted to give money to the non-working and working “poor”, do it via the Flat Tax’s prebate system. Now is the time for the Flat Tax!

p.s. Regarding Social Security, in order to keep it solvent, Beltway rumors are aflutter with the forthcoming Obama-team ideas that everything will have to be taxed -and- get this, it will need to be “means tested”, meaning those who can afford to live without it, won’t get it, but the Tho$nd$ they contributed will be very much appreciated!