BY: Jacek Popiel
Written on: November 26, 2012
The “fiscal cliff” idea stems from one simple fact: the U.S. economy is too weak to support the revenue needs of the government, leading to ever increasing deficits. At some point in this sequence the dollar will crash or the government default on its obligations. Either would be a disaster.
Hence the talk of drastic increases in taxes coupled with huge cuts in spending. Given the power and influence of the interest groups concerned, such measures might in practice be politically impossible. In the end, cliff or not, the can is likely to be kicked further, letting the next Congress to deal with it.
No one appears to think that should the economy grow and generate more income for all concerned, the problem would get smaller and the solution easier.
How fast can the economy grow? The current thinking is that 3% or 4% per year would be wonderful. Anything above that would be difficult if not impossible.
What about 20%?
It has been done.
In May 1940 President Roosevelt, seeing the inevitable coming of WWII, decided to bury the bitter division between the New Deal Democrat government and Republican leaders of U.S. industry. Only national unity would allow America to re-arm fast enough to overcome the onslaught of the long-prepared Axis powers.
The initial 18 months of the World War II industrial build-up were disorderly, with changes of personnel, political games, poor communications and confused priorities. But the President, his advisers, the military and industry representatives worked the kinks out. In late 1941, when the Japanese attacked Pearl Harbor, U.S. war production was on track and speeding up.
The President believed that raw energy and initiative would yield better results than rigid top-down planning. He was right.
In 1942, 1943 and 1944 the economy grew by more than 20% per year. In five years it doubled in size. It produced 141 aircraft carriers, 324,000 planes, 88,000 tanks and mountains of other equipment and ammunition. It equipped, fed and fueled our allies while we fought a war on two fronts.
Management, communications and logistics made huge strides, as did applied science, technology and engineering. By mid-1944 the armaments pipeline was so full that the government began to crank down war production to start the conversion to civilian products.
This was no “patriotic miracle”.
It was a process that was conceived, planned, developed and managed by an alliance between the public and private sectors in order to equip our military to fight America’s war.
This process can be duplicated today, on the scale and at the speed we choose if we understand that we can grow the economy at will. We need the will and national unity, and take inspiration from what has already been achieved.
(Note: “Freedom’s Forge” by Arthur Herman (2012) and “Struggle for Survival” by Eliot Janeway (1951) for a more detailed picture of the WWII industrial build-up).