The two most perplexing questions about the economic stimulus package that the Obama administration and Congress are working on are:

Will it work?
Where will the money come from?
It is useful to look at historical precedents. What does history tell us about the results of economic stimulus packages? The earliest example that comes to my mind, though it wasn’t called an “economic stimulus package,” is the federal government subsidies for building the transcontinental railroad.

The transcontinental railroad jumpstarted and accelerated the American industrial revolution and produced a huge multiplier effect. There are some parallels for today, so let’s look at:

What the federal government did and why
What the results were
What lessons we can learn

Lincoln supported building a railroad from Omaha to San Francisco because it would unify the country from east to west. It was a logical part of binding up the union. He also saw that, from an internal improvements perspective, it would create a national market. The big obstacle that had to be overcome was sectional politics.

In order to achieve the goal, the government provided both land and money. This was a marriage between the federal government and private enterprise. It was tied to the Homestead Act because Lincoln had in mind middle-class farm owners in the west as part of his program for the containment of slavery .

What were the results? The railroad was completed in record time, and the multiplier effect was enormous. It was one of Lincoln’s major legacies. How was he able to accomplish this? The railroad was integral to his vision for the future of the nation, and he was able to overcome political obstacles because he was not tied to specific interest groups. So, hIs public-private partnership worked.

That’s a summary, but please listen to more details and analysis of the story. I’m very troubled by deficit spending, but in my next post, I’ll look at an example where deficit spending worked wonders. If you want to see it when it’s posted, please subscribe via RSS or email.

What do you think? Will the economic stimulus plan that’s in the news now be as successful as Abraham Lincoln’s?

Thanks for reading,
Dr. Art Pitz
The Professor’s House