The United States began as a capitalist economy, with the government always taking a back seat in economic matters. However, during the Great Depression of the 1930s, John Maynard Keynes, a British economist, called for a revolution in neoclassical economics, stating that in a depression the government must not stay passive, waiting for market forces to bring demand back up. He advocated fiscal and monetary policies as well as large government spending to instil confidence in the people.
Hence, in 1933, President Roosevelt established the Public Works Administration (PWA). As a result, PWA took on the monumental task of combating unemployment. It employed 8.5 million Americans and oversaw the construction of dams, sewage treatment plants, courthouses, and schools. Over 650,000 miles of road were constructed, as well as 125,000 buildings, 75,000 bridges, and 8,000 parks. The final cost estimate was $7 billion, which equates to $140 billion in 2022.
Regardless of how impressive the PWA’s work appears on paper, the Great Depression ended in 1939, when World War II began, and the PWA was quickly liquidated during the war. So did all that government spending count for something?
The Cold War took the form of a Nuclear Arms Race, a Space Race, and several proxy wars. Until 1969, the USSR continually led the space race with the first successful satellite launch, the first man in space, and the first satellite on the moon, but the USA flipped the table by stepping onto the moon with Apollo 11. In the following years, they made five more successful manned missions to the moon. The Apollo programme ran from 1960 to 1973 with 17 missions at a cost of $25.4 bn, equalling $160 bn today.
The little-known fact is that taxpayers were dissatisfied with the paltry discoveries of subsequent missions, and the government cut NASA’s budget, cancelling the last three missions.
Similar to North and South Korea, Vietnam also split into North and South in 1955 because of ideological differences arising from Cold War influence. And then came the Vietnam War in 1965. Communist North Vietnam was trained and armed by China and the USSR, while Capitalist South Vietnam’s entire infrastructure was a US government project, and American soldiers went to fight and protect the government’s investment.
In the process, the US lost countless young lives on foreign soil. The war lasted a decade from 1965 to 1975 and cost the US $168 bn, translating to $1 trillion today.
During this period, the voting age in the USA was lowered from 21 to 18. At the end of the war, the military draft system was scrapped and an all-volunteer system was instated.
In 1981, the US Air Force began working on building an air fighter to replace its older models. In 1997, they created the world’s greatest fighter jet, the F-22 Raptor. To date, the F-22 has not been matched by any known or projected fighter aircraft. The highly advanced and powerful jet fighter programme cost the United States $62 billion in 2006. This would have cost $85 billion in 2020, which is nearly half the cost of the entire Apollo programme that sent man to the moon. The original plan was to manufacture 750 air fighters but was cut several times by government resolutions until 2009 when it was decided to close production by FY2011 with an end figure of 187 units.
The aircraft were costly and had no real application. It has not been used significantly in any combat mission until now and was never a feasible option for the battles in Afghanistan or Iraq.
The bankruptcy of Lehman Brothers Bank on September 15, 2008, burst the housing bubble and threw the world into an economic recession, now called the Global Financial Crisis. On October 3, 2008, the Emergency Economic Stabilization Act of 2008 was passed by George W. Bush. The law enabled the treasury secretary to spend $700 billion of taxpayer money to buy loss-making assets and bailout banks. The government made a swift response to the crisis, but no one knows if it was an effective response. In November 2008, George Bush’s opposition won the election and his term ended. Many economists say the recession ended only in 2016—that means the economic crisis of 2008 lasted longer than the Great Depression of 1930.
The Iraq War lasted from 2003 to 2011. The Afghan War lasted from 2001 to 2021. The direct costs of war are estimated to be $2.3 trillion each. The actual cost of war exceeds this figure. During the Korean War, the top tax rate – a tax for the wealthiest in society – was raised to 92%. In the Vietnam War, they were raised to 77%. But at the outset of the Iraq and Afghanistan wars, they were reduced by at least 8%. This is evidence enough that the entire war was debt-financed and the interest on a trillion dollar debt will be paid out by the next generation.
Hence, concluding that the US’s large expenditures in several such cases are questionable. They have been economically bad decisions; yet, it seems the government willingly undertakes deficit spending all to impress upon the world that the USA is “great”. Or maybe this compulsion finds its root in John Maynard Keynes’ theory. Keynes even once said, “The government should pay people to dig holes in the ground and then fill them up.”, which roughly means that “any economic activity is good activity.” Therefore, the question arises, are the USA’s massive expenditures justified or just in vain?
By Rishabh Jain