World War I veterans in 1920, who later had the chance to borrow against their bonus

Brad Delong not only praises Federal Lines of Credit, he managed to identify some empirical evidence that suggests they should indeed be more powerful than tax rebates! Here is what he says:

The interesting thing is that we have done this before. In 1931 and 1936 the Congress (over the objections of President Hoover in the first case and President Roosevelt in the second) gave World War I veterans the option to borrow against the WWI Veterans’ Bonus that they were going to be paid in the future:

Then Brad cites a study of letting veterans back then borrow against their bonus by Berkeley graduate student Joshua Hausman. Here is Brad’s summary of the results:

Because the bonus was paid to veterans and only veterans, Josh has substantial cross-section identification off of the different proportions of veterans in the several states. The (preliminary) figures and regression results are, to my eye, awesome: a cash-flow multiplier that looks to be 0.8 or so.

Federal Lines of Credit are an extraordinarily effective recession-fighting policy when mental accounts or liquidity constraints are important, and it looks as though they were very important in the 1930s.