Economic Folk Science

by Will on August 18, 2010

Matt Yglesias is right to highlight the incoherence of senate candidate Sharon Angle’s thinking about economic theory:

Q. Did Keynesian economics, the stimulus spending, work in the Depression of the ’30s?

A. No. And I think history has really proven that to be true. Most economists agree that the thing that really worked, which is a sad commentary, is the war.

As Yglesias notes, she’s correct about the war ending the Depression. She’s also apparently mistaken (as is the interviewer) about the amount of deficit spending that happened during the Depression, which in reality was never as high as it needed to be, and which ended abruptly in 1937. But if Angle doesn’t believe that deficit spending can end a recession, how precisely does she believe that the war — wherein the federal government took on a historically massive debt to pay for mobilization and deployment of force –ended the recession? Also, how would she explain the inflationary boom that the US experienced during World War I?

It’s true that deficit spending wasn’t the only thing going on because of the war: there was also an influx of gold into the US due to European anxieties, and an increase in demand for American agricultural products, due to chaotic conditions in Europe. But that’s not normally what people are referring to when they say, “it was the war that ended the Great Depression.”

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