The controversy between the supporters and opponents of President Roosevelt’s mechanism in transforming the economy during the Great Recession is a debate of whether deficit spending is correct or incorrect. The president inherited a presidency and an economy hit by policy and economic challenges and his move, made in desperation, was geared towards salvaging an already crashing economy. According to Romer (1992), the deficit spending through the industrial and agricultural funding and the reliefs offered at the time was a necessary move that supported the economy by allowing it to exist until it was stable despite the imminent fall. Although the output was low over the next period until the onset of World War II, the new deal by adopting the Keynesian principles sustained the fabric of the economy.
The inflow of gold from Europe stimulated the depressed economy by increasing the money supply into the system. This was supported the administration’s policy and in part by the nature of politics in Europe (Romer, 1992). However, the presidency directly stabilized the economy by accepting the inflow of the gold. This emphasizes the need for resources to back up monetary value. The government should spend on acquisition of resources to support its money and improve the economy during the economic crisis.
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President Roosevelt’s move was necessary because the stock market had crashed, interests were low, the banks were closing, and private investment was low (Romer, 1992). As noted, the federal expenditure on public investment in the form of economic stimulus regenerated the economy by sustaining fundamental infrastructures such as the industries and agriculture. Just as the banks were closing, it is possible that the nation could have also lost its industries to the depression.
The significance of fiscal policy is demonstrated from this history. The role of the government in economic hardships particularly economic recession should be supported. From this history, the government prevented the exploitation by private investors and it is therefore important that the government intervene for the benefits of the people. Greater harm could have resulted in case the private investors were manipulated the economy in the great recession, and the phenomenon would have lasted longer than anticipated. Finally, fiscal policy should be practiced consistently as long as it is balanced not to run the country into debt. This process will ensure a balance between the private and public investments and give the economy an opportunity to self-correct with the support from the government.
Reference
Romer, C. D. (1992). What ended the great depression? The Journal of Economic History, 52 (4), 757-784.
