Is Large Deficit Spending the Right Approach to the Economy?

There has been a lot of talk over the last month especially in conservative circles that deficit spending is not the best way to stimulate the economy. They argue that when similar actions occurred during the New Deal it was WWII that got us out of the Great Depression. Der Speigel has an interesting piece calling for President Obama not to pull a Roosevelt. The article mentioned that even Roosevelt's Treasury Secretary, Henry Morgenthau said it was a bad policy.

"We are spending more than we have ever spent before, and it does not work ... I say after eight years of this administration, we have just as much unemployment as when we started -- and an enormous debt to boot."

The Stimulus packages that are being proposed in Congress supported by Obama should help stimulate the economy but it will not be the ticket out of the recession and the deficit could actually hamper any type of recovery with increase in interest rates and inflationary concerns. With the global economy slowing, countries like China need to spend more at home and will not keep up purchasing US$ to help finance our debt. They will continue to buy but not in the large quantities that it previously had.

According to the Washington Times. The Congressional Budget Office says that the stimulus package will actually hurt the economy in the long term by "crowding out private investment."