Forbes examines the historical record surrounding government spending cuts

The latest issue of Forbes magazine includes Steve Forbesruminations on the likely economic impact of government spending cuts.

Would a big cut in government spending send our already fragile economy into a tailspin? Nonsense. Federal outlays mean fewer resources for the rest of us, who create those resources in the first place. Take our nation’s experience following World War II. Liberals fretted that without big budgets the U.S. would slip back into another depression. But Washington went ahead and did the exact opposite of what Keynesian economics says is essential. Government spending was slashed by almost 70% from its wartime high of $92 billion to $29 billion in 1948: Government spending as a proportion of GDP plummeted from almost 44% to 12%.

Taxes were cut. The top marginal rate didn’t go down very much, but Congress permitted the filing of joint income tax returns for couples–the equivalent of an almost 50% cut in taxes for families. Wartime surtaxes on businesses were eliminated. Numerous excise taxes were cut deeply.

Big-government types were almost equally aghast at other anti-Keynesian actions. Wartime wage-and-price controls were swept away, as was the rationing of food, gasoline and other items. Critics feared these “rash” acts would lead to severe shortages and unaffordably high prices. Instead, American businesses, freed from wartime restraints, converted to peacetime production with remarkable rapidity.

Another major reform was the Taft-Hartley Act, which undid much of the damaging effects of Franklin Roosevelt’s lopsided pro-Big Labor laws and regulations.

The result was a miracle.

Mitch Kokai / Senior Political Analyst

Mitch Kokai is senior political analyst for the John Locke Foundation. He joined JLF in December 2005 as director of communications. That followed more than four years as chie...

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