Conservatives argue that Roosevelt's Keynesian policies were ineffectual because it was not until the country mobilized for World War 2 that the economy turned around. The lesson that Christina Romer, the chairman of the White House Council of Economic Advisers, has drawn is that Roosevelt did not do enough. "The key fact is that while Roosevelt's fiscal actions were a bold break from the past, they were nevertheless small relative to the size of the problem," she said. "This is a lesson the administration has taken to heart."
Roosevelt made a puny attempt at stimulus spending, whereas World War 2 did, and Obama will, make an heroic attempt at stimulus spending. This should hearten us.
What if the truth of the World War 2 economic recovery was more complex? What if it was not just a simple matter of spending more money but was from spending money in a particular way?
After World War 1, the Allies could not even make sense of German patents without German engineers and scientists. War with the Nazis, decades later, was a stimulus of a specific kind. Americans did not just spend money on factories and production. We spent money on research and development, higher education, and furthering fields like computers , cybernetics, production systems, and chemistry. Our reaction to the advances of German engineering and science was a specific kind of stimulus: it helped to usher us into the information age and helped to create the management and production techniques that helped to make American corporations dominant in the business world and the institutions most emulated across the world.
The deficit spending of World War 2 did not just save the world from tyranny. It helped to create a new kind of economy.
It is not that the U.S. is no longer an information economy. It is that the American economy is now a part of a global information economy. This has changed things enormously.
The point is not to stimulate the old Information Economy, stimulating domestic consumption and investment that it likely to go into foreign production capacity and goods in this global economy. The goal instead should be to help to create a new economy, just as we did during World War 2.
At the risk of sounding trite, it is not time to repair the garment that fits us and our time less well. It is time to create a new garment that we've grown into. It is not enough to stimulate the Information Economy; we need to create a new Entrepreneurial economy instead. We probably do need deficit spending to do this. But not deficit spending mindlessly spent on what worked in the 1930s and 40s.