Political Science

The purpose of the New Deal policies was to revitalize the American economy, reduce unemployment, and improve infrastructure. By 1939, however, the policies set by the FDR administration made little headway. It was essentially the Second World War which set the motion for economic revitalization. Government spending tripled, and major industry players moved to supply Americas war efforts. However, after the Second World War, the economy contracted. Government spending on arms and infrastructure decreased by 40.

To revive the economy, President Eisenhower adopted fiscal and monetary measures to curb inflation, improve the countrys credit ratings, and increase foreign direct investments. In 1961, President Kennedy announced that he would increase the pace of American arms build-up. This was a step towards full economic recovery. With the escalation of the Vietnam War, President Nixon further increased the countrys military arsenal, leading to a small but significant increase in GDP. Conventional theory states that increased government spending (either on infrastructure or arms) will lead to increased economic output.

The crisis fell on the Carter administration. The country suffered from long-term inflation and unemployment, coupled with threats of terrorism. Political scientists blamed Americas wars for the catastrophe. The Vietnam War had overstretched the countrys resources and bloated the budget deficit. During the Clinton administration, moderation in government spending had improved economic conditions. Regulations on trade and FDI had nominally restored the countrys productive capacity (beyond the 1994 mark-up).

From my opinion, although the Second World War had helped in revitalizing the American economy, it exhausted the countrys productive capacity. This is true in the case of the Vietnam War, the Afghan War, the War on Terrorism, and the War on Iraq. Note that after each war, the country suffers from long-term economic stagnation (culminating in the 2009 recession). Perhaps, this was an effect of political friction in the market. It may be true that indeed the course of political policies has a significant effect on the performance of the market. It is hard to imagine that while conventional theory assumes a politics-free market, empirical results show that politics is a determinant of economic growth. Here, the errors of the American political theory are manifested. The political destiny of a state is not far removed from the vagrancy of the economy. Nor it could be argued that the economy is free from political control. If the market was left to fend for itself, then it would be affected by disastrous political decisions. Contrary to conventional theory, regulation allows the market to maintain a certain degree of political autonomy. This political autonomy prevents the market from overexposing itself to the dangers of political friction.