And the nation is poised to put this theory to the test on a scale untried in peacetime by any developed country on Earth.
President-elect Barack Obama will soon unveil a package of tax cuts and spending increases that, combined with already planned spending, would push Washington’s 2009 deficit to between $1.5 trillion and $2 trillion — more than 10% of the economy’s output. And he will argue that this tidal wave of federal expenditure should continue into next year, and perhaps beyond.
Only during World War II did U.S. government expenditures account for a greater share of economic activity, according to federal statistics. That’s also true for virtually every other developed country.
“There’s been nothing of the magnitude of what the incoming administration is contemplating — certainly not as intentional policy — in the modern era,” said Adam Posen, deputy director of the Peterson Institute for International Economics in Washington.