A tale of 2 depressions

[ashling]

http://www.politico.com/news/stories/0911/63266.html

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President Franklin D. Roosevelt had never really been a believer in Keynesian economics. He worried greatly about the budget deficits created by the New Deal programs. When he decided that his 1936 reelection was secured, FDR began cutting back on spending — particularly the work relief programs of the Works Progress Administration. Demand in the economy was further depressed by the beginning of the collection of Social Security taxes to build up the system’s trust fund with no payments yet being made.

The result was the recession of 1937-38. Unemployment soared back up to 19 percent and the Dow Jones Industrial Average dropped by 50 percent. It took renewed spending to reverse this new slide. Ultimately, it took the massive spending for World War II to bring about full recovery.

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Yet now, most of our leaders, especially those in the Republican Party, are intent on repeating the mistakes of 1937.

There is, unfortunately in the view of many of us, no WPA to cut back today. But the wrongheaded budget cuts are causing the loss of vast numbers of state and local jobs that had been saved by the original stimulus. Those job losses will inevitably have a reverse multiplier effect — call it a divider effect — on state and local economies across the nation as private-sector businesses lose sales they would have made to government employees had the latter kept their jobs.



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