There is a quote I often hear that goes, “A country cannot spend itself into prosperity.” This is actually a misquote of Winston Churchill who said, “I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”
So, the quote is wrong, but what about the message it conveys? Is that wrong as well?
Actually, yes. there are too many examples from history that would be easy to list, such as the conversion of the Japanese Empire from a feudal nation into a modern industrialized nation in the later half of the 19th century, the growth of the Second German Empire at the same time, US growth during WWII, the Trans-Continental Railroad, or frankly the industrialization of any modern nation. They were never accomplished without government support/funds for private companies. Some attempts have failed (Japan in the 1990s), but the idea has a very high success rate.
One of the best examples is the execution of the Marshall Plan in post WWII Europe. After the Second World War, almost all of Europe was devastated economically, socially, and politically. Millions lived in refugee camps, while millions more were starving, and in need of urgent medical care. The colonial possessions of the fading empires had become self-aware, and wars of liberation were constant. The communists had proven themselves the best organized resistance to the fascist regimes, and it appeared that they or their ideals would win all of the elections in Western Europe. By this point the United States and its supporters had turned against their former ally, the Soviet Union, and were determined to stop the spread of its influence.
George Marshall was a former general and the Secretary of State in 1948. An excellent organizer, he won the support of a Democratic president and a Republican Congress to give funds and goods to foreign governments for the specific purpose to develop prosperity in Europe and indirectly to curtail communism. 17 countries in Europe were able to develop themselves into modern democratic economies. Nations in Asia and the Middle East, including the new nation of Israel, received aid in the same way, although those were under separate programs. US history books often ignore the contributions that Canada, also undamaged by the war, made in this effort. The Soviet Union and its allies were offered help, but refused, and their economies struggled to advance as well as their counterparts.
Ironically from the modern prospective, the Plan was criticized by many economists because they felt that the only way for Europe to recover was thorough savings, capital accumulation, and the expansion of private enterprise. Sounds great from a theoretical stance in an undamaged land across the sea, but the reality for millions of suffering people would have been a communist Europe. As I often say, the Europeans are socialists for a reason.
So, the next time somebody says this, just say “Marshall Plan.” And then ask, “If its such a stupid idea, why did we try to do the same thing in Iraq and Afghanistan?”