No, It’s Not 1937 Again.

It is amazing how the mainstream media will pick up on some phrase or idea and then run with it before stopping to see if that idea survives objective examination.

I woke up this morning only to be told that it is now 1937.  I looked around for Rod Serling, but he was not behind any of my drapes and I didn’t find any cigarette stubs lying around either, so I knew this wasn’t the Twilight Zone.

Or maybe it is.

Submitted for your approval:

You may or may not be aware of the conventional historical wisdom, but here it is anyway.

FDR and his New Deal pulled America out of the Great Depression through a myriad of governmental programs and Keynesian economic policies of deficit spending.  By 1937, FDR had become concerned about the national debt his administration had run up, so he reduced government spending and support for New Deal programs. The result?  The economy tanked into the “Roosevelt Recession” of 1938.  Only when he increased government deficit spending the following year did the economy rebound.

This is a very convenient interpretation, if your present day agenda is having the federal government apply a second stimulus to our stalled economy, even if it means borrowing more money to spend, or raising taxes in the middle of our current economic doldrums.

My personal feeling is that FDR was a terrific leader in the first year of his presidency, and in the last five years of his presidency.  In between?  Not so good.

Back to 1937 with some facts that are similar to our situation today and some that disprove any commonality between 2011 and 1937.  Then judge for yourself if history is about to repeat itself.

  • In 1937, we were not really in year 7 or 8 of a Great Depression that began with the Stock Market Crash of 1929 and deepened with the passage of the protectionist Smoot-Hawley Tariff of June, 1930.  Our economic foundation had begun to crack and crumble years before, in the mid 1920s, on America’s farms. The market crash and Smoot-Hawley were consequences of the Farm Depression and declining consumer demand, not initial causes of the Great Depression. (Smoot-Hawley, BTW, was intended as tariff protection only for America’s beleaguered farmers, but once the bill reached the floor of Congress, it was larded up with additional layers of tariff protections for special interests who hired lobbyists to help reshape and expand the legislation. Does that sound familiar?)
  • The unemployment rate in 1937 was at 15% But the unemployment rate among non-farm workers was above 20%, and would remain so, until FDR created a “war economy” in 1940-41.
  • 1937 saw FDR’s budget actually reduce government expenditures by 3.6%. The current federal budget debate is about whether or not to reduce the rate of growth of the federal budget, not whether the budget itself will decrease in the years ahead. Current projections are that the federal government’s spending will increase so much in the next decade that, even if you accept the Obama Administration’s rosy projections for 4.1% annual economic growth, we will add more than $10 trillion dollars to the national debt.
  • In 1937, the GDP finally surpassed the GDP of 1929.  It had shown healthy growth since 1933, after four years of decline.
  • In 1937, US imports declined by 22.3% over the previous year. In 2011, imports are at an all-time high.
  • In 1937, private sector business investments decreased by 34.8%, not because FDR cut back on federal spending on the New Deal, but because of uncertainty made worse for business investors by a multitude of often conflicting government programs and regulations, and because FDR moved to raise taxes.

So, is it 1937 again in 2011?  You be the judge based on knowledge of historical facts, not because media parrots cluster around a catch phrase or somebody’s political talking points.

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Sometimes, it isn’t too easy to make sense of economics, especially when the numbers are so large they can almost not be imagined.  And over the past month or so, the debt increase arguments in Washington tossed around numbers so much that you got the impression the speakers were trying to obfuscate rather than inform. So try this one on for size:

If the US government was a family, they would be making $58,000 a year, they spend $75,000 a year, and are $327,000 in credit card debt. They are proposing BIG spending cuts to reduce their spending to $72,000 a year. These are actual proportions of the federal budget and debt, reduced to a level that we can understand.


One response to “No, It’s Not 1937 Again.

  1. Thanks for putting those numbers in perspective in the last paragraph.

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