Jim Powell, the author of FDR's Folly, Wilson's War, and several other great works of popular history, had a sharp op-ed in yesterday's Washington Times arguing that President-elect Barack Obama should stimulate the economy via across-the-board tax cuts, not with the wasteful, New Deal-style spending we're more likely to get:
The president-elect has a great deal of history to instruct him here. Mr. Obama's hero, Franklin D. Roosevelt, tried to spend America out of the Great Depression with infrastructure projects, and they were a costly disappointment; unemployment averaged 17 percent during the height of the New Deal, from 1933 to 1940. Consider the Tennessee Valley Authority, one of FDR's most ambitious projects: In the decades since TVA dams began operating, states with TVA-subsidized electricity like Tennessee have lagged behind non-subsidized Southern states like Georgia in economic growth and average incomes.
Discussion about economic stimulus tends to be dominated by the question of how much money will be spent, but the effectiveness of spending decisions is even more important. The United States was a comparatively poor country two hundred years ago, but it became wealthy because decisions about allocating resources were made mainly by private individuals with strong incentives to make the most of what they had. Similarly, in recent decades the expansion of private decision-making has enabled hundreds of millions throughout Asia to emerge from poverty. Cutting taxes returns resources to private individuals, who are best placed to make the most effective spending decisions.