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Originally Posted by gloopy
Not really. Our biggest prosperity was after WWII when we finally made massive government cuts at all levels including military and flooded the workforce with millions returning from war. Cutting the money train energized the economy like nothing we've ever done. We then built, and promptly started to waste, all that prosperity re-growing goverment at all levels, babysitting the globe and huffing off the reserve currency printing press crack pipe worrying about the bill tomorrow and here we are.
The most dangerous thing you can do is try to look at a complicated system and make simplistic conclusions. We had prosperity after WW II mainly because most of the industrial base of the rest of world had been blown up, much of it courtesy of the US industrial base that was never touched during the war. It sure is easy to be a manufacturing powerhouse when the rest of the world has been destroyed.
Go back and look at the Marshall Plan and the size of that stimulus plan for Europe. Adjust it for inflation, let me know what you think.
By the way, I am pretty sure the top marginal tax rate back then was 91%. That is not a misprint, 91%. Maybe you think high tax rates cause prosperity.
There is no simple answer to derive from a complicated system. The biggest problem we have in our country right now is that the problems are big and people keep trying to come up with simplistic solutions. As people become entrenched in these simplistic little bubbles, they no longer become interested in complicated solutions which is what is required by complicated problems.
Our current economy is hit by a dramatic drop in demand. People aren't buying things like they were, especially houses, and that has slowed the economy down. Businesses are flush with cash and are ready to hire and produce goods as long as someone will buy them. Talking about supply side economics is insane now, it is demand that is the problem. You can't push a rope.
There are two ways for the government to stimulate demand, the first is to give tax cuts, especially general tax cuts that hit the lower 75% of the economic spectrum. Virtually all of this money is spent and therefore will drive up demand. Sounds like we need to extend the payroll tax cut for at least another year, let's hope Congress agrees.
The other way to stimulate demand is by increasing government spending. The depression did not occur with the stock market crash. The depression happened when Hoover cut back government spending (demand) at the same time that the public was cutting back spending (demand). No demand, no economy, no jobs, etc. That is why the stimulus program was exactly the right thing to do back in 2009. It was completely counter cyclical to the drop in consumer demand. The stimulus program was about equal parts general tax cuts, aid to state and local governments, and public works projects. They probably should have spent more on public works projects because the reduced public demand drove down prices and the government was able to accomplish about 20% more than they originally estimated due to the low bids.
Cutting government spending will occur over the long run. It is not a panacea for all economic problems. If you cut too much now, then you will surely spark a new recession. In the end, to balance our budget we will have to have more growth, higher tax revenues, and dramatically reduce entitlement spending, especially Medicare and Social Security. All are very tough things to do, but simplistic answers will just keep us mired in this hole we are in.
Yesterday
(for a few more months...) 
