Sack a million bureaucrats and cut government spending by 60%: it worked last time. By George Gilder, writing of the US.
After World War II, when 10 million demobilized servicemen returned from the front to an economy that had to be converted from a garrison state to meet civilian needs, economists steeled themselves for a renewed Great Depression.
But a big congressional Republican victory in the elections of 1946 propelled a drastic turn away from the government-planning regime of the war. Government spending plummeted by no less than 61% between 1945 and 1947. …
Some 150,000 government regulators were laid off, along with perhaps a million other civilian employees of government.
Disbanded were such managerial agencies as the War Production Board, the War Labor Board and the Office of Price Administration, beloved of John Kenneth Galbraith. Every Keynesian and socialist economist confidently predicted doom.
In 1945, Paul Samuelson [the first US economist to win the Nobel Prize] prophesied “the greatest period of unemployment and dislocation which any economy has ever faced.”
Result: The greatest boom in US history.
There was no new depression, though. In fact, the historic ascent of America saved the world economy from socialism.
Economic growth surged by 10% over two years… The civilian labor force expanded by 7 million workers…
Released from wartime controls, the private sector launched a 10-year boom despite tax rates on investors as high as 91%. Compensating for the high top rates was an effective 50% tax cut through the enactment of the joint return for households.
Freed from regulations and tax burdens and relieved of wartime stresses, large manufacturing corporations emerged as spearheads of global capitalism.
Sound money and fixed exchange rates curbed the ability of the finance industry to manufacture new money and the ability of bureaucrats to set interest rates:
Crucially complementing these deregulatory policies was an era of relatively sound and reliable money. Of course, this worldwide ascent from depression and war was built around a simple framework that we no longer have: the gold exchange standard…
Negotiated in 1944 among all the Allied powers at Bretton Woods, it made currencies convertible into dollars, which in turn were convertible into gold at $35 an ounce.
The fixed exchange rates of Bretton Woods provided the stability that lengthened the horizons of global investment and enterprise.
Remaining in place throughout the postwar boom, they provided the monetary backing for global growth that averaged 2.8% per year for 25 years, a level unequaled before or since and almost double the growth rate since 1971.
There were few defaults, no banking crises and an efflorescence of innovation and progress in what even current prophets of “secular stagnation” regard as a golden age.
But the bureaucrats wrested back control in 1971:
Then it all changed.
After the end of Bretton Woods, in 1971, the monetary regime became mostly dependent on the politics of central banking, chiefly the U.S. Federal Reserve and the European Central Bank.
Yes, the dollar provided an adequate haven for extended periods. But reliable money became increasingly scarce.
With the central banks’ ability to easily manipulate money, anyone with a long-term investment or asset, a fixed goal or visionary cause, deep pockets or commitments, a family or a career or even an enduring job becomes a gull for the government.
A “golden age” is aptly named. We currently live in an age of bureaucrats, big government, and paper currency.