The federal budget was in deficit from 1931 to 1939, except in the year 1937. Given this fact, how do you explain E. Cary Brown's statement, "Fiscal policy, then, seems to have been an unsuccessful recovery device in the 'thirties-not because it did not

Question

work, but because it was not tried."

What will be an ideal response?

Answer 1

Economist E. Cary Brown is arguing that while the actual federal budget was mainly in deficit during the Great Depression, the cyclically adjusted federal budget was in surplus, except for one year. Cyclically adjusting the budget calculates what revenues and expenditures would have been, had the economy been producing an output equal to potential GDP. The deficits in the 'thirties were due to a precipitous decline in tax revenues, not a substantial increase in government expenditures. A substantial increase in government expenditures was needed to pull the economy out of depression, and this did not occur. As a result, one might argue that discretionary expansionary fiscal policy was not pursued during the Great Depression.