Fiscal Policy and Business Cycles

By Alvin H. Hansen | Go to book overview

Chapter XXIII
THE POSTDEFENSE SLUMP

TWO considerations must be taken account of in appraising the problem of a postdefense slump. The first is the withdrawal of heavy consumption taxes imposed during the major defense effort as a means to check inflation. The relief from several billion dollars of consumption taxes would act as a powerful counterweight to the reduction of military expenditures. Just as resources were diverted from supplying private demand to satisfying the requirements of a defense program through heavy consumption taxes, so also they may be diverted back again to private use by the release of consumer purchasing power incident to the cancellation of emergency consumption taxes.

The second major factor to take account of is the probable revolutionary change which the changed international situation will likely make in our federal budget, even after the major defense program is completed. It is estimated that even the currently contemplated military strength, once completed, will require an annual outlay of about $6 billions in upkeep, maintenance, and replacement. And it is more than probable that we shall sharply revise our defense program upward, perhaps doubling currently planned expansion. It does not appear probable now, at any rate, that anything can happen in the near future which will turn Europe and Asia into stable, peaceful continents during the next two or three decades. Even though we suppose that, somehow, Hitlerism completely collapses in Germany, the problems of Europe would not thereby suddenly be solved. A new Europe will have to

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