Trump's Budget Cuts Should Take A Lesson From History

  • Calvin Wolf
  • Mar 18, 2017 11:32AM

“Those who cannot remember the past are doomed to repeat it” - George Santayana, The Life of Reason (1905).

Among academic subjects, history is often treated as a triviality.  At the K-12 level, the field of social studies is subject to the fewest high-stakes testing. In higher education, those pursuing degrees in the Humanities are often mocked as inevitable members of the “boomerang generation” who will return from college to their childhood bedrooms. Nationwide, resources are heavily skewed toward STEM, or fields in Science, Technology, Engineering, and Math. 

The reasoning is simple: There’s no money in history. If you want a good job after college, conventional wisdom asserts, you should major something related to “hard sciences.” 

But perhaps our disdain for history has allowed many of our national leaders to forget the dangers of past ignorance and hubris. The past of which I speak is the late 1920s, under Republican President Herbert Hoover. This era of laissez-faire economics saw the development of a perfect storm of instabilities: Few government regulations in banking and investing, no comprehensive social safety nets, and little use of fiscal policy. 

When the big crash hit in October 1929, the devastation quickly spread from Wall Street to main street. Hoover’s administration was unprepared for the crisis and expected that local governments and charities could handle the growing wave of unemployment. Not until his successor, Democratic President Franklin D. Roosevelt, enacted the New Deal reforms in 1933 did the worst of the Great Depression begin to ease.

Today’s federal government is tremendously influenced by FDR and the New Deal, which changed governance from reactive to proactive. Until the Great Depression, the federal government was largely seen as an institution that should react to crises: Wars, interstate commerce, and problems that spread from state to state. After the Great Depression and World War II, the success of fiscal policy in boosting aggregate demand established a new role for the federal government: Maintaining economic stimulation through both aid and strategic investment.

During the 1950s and 1960s, this proactive governance continued. The federal government invested heavily in the GI Bill, GI loans, the interstate highway system, Medicare, Medicaid, and public education. America’s economic boom continued. But, in the 1970s, the political landscape changed. The liberal-conservative consensus that had existed from 1933 until the late 1960s morphed into the conservative resurgence.

Republicans, especially in the 1980s under President Ronald Reagan, cut spending on social programs and boosted military spending. Coupled with tax cuts, the boost in defense spending did increase GDP, but at the expense of a rapidly-growing national debt. Hidden underneath the growing GDP was the fact that real wages for most American workers were stagnant. The conservative resurgence was an economic boon to the wealthy, who benefitted directly from tax cuts, but pinched everyone else’s wallets.

It was almost as if most policymakers forgot that the era of liberal spending, and not Reagan’s famous “trickle-down economics,” was the rising tide that had lifted all boats. From the 1930s to the 1960s, real wages grew consistently. Since the 1970s, real wages have fallen.