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Q4 2011: A 1937 Flashback?

August 1, 2011

From Wikipedia on the Great Depression:

“By 1936, the main economic indicators had regained the levels of the late 1920s, except for unemployment, which remained high at 11%, although this was considerably lower than the 25% unemployment rate seen in 1933. In the spring of 1937, American industrial production exceeded that of 1929 and remained level until June 1937. In June 1937, the Roosevelt administration cut spending and increased taxation in an attempt to balance the federal budget.[83] The American economy then took a sharp downturn, lasting for 13 months through most of 1938. Industrial production fell almost 30 per cent within a few months and production of durable goods fell even faster. Unemployment jumped from 14.3% in 1937 to 19.0% in 1938, rising from 5 million to more than 12 million in early 1938.[84] Manufacturing output fell by 37% from the 1937 peak and was back to 1934 levels.[85] Producers reduced their expenditures on durable goods, and inventories declined, but personal income was only 15% lower than it had been at the peak in 1937. As unemployment rose, consumers’ expenditures declined, leading to further cutbacks in production. By May 1938 retail sales began to increase, employment improved, and industrial production turned up after June 1938.[86] After the recovery from the Recession of 1937–1938, conservatives were able to form a bipartisan conservative coalition to stop further expansion of the New Deal and, when unemployment dropped to 2%, they abolished WPA, CCC and the PWA relief programs. Social Security, however, remained in place.”

In August 2011, the Obama administration and congress cut back spending in an attempt to balance the budget.  Most people don’t have the same economic cushion they had in 2007, so a slump this time could be quite severe.

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  1. wh10
    August 1, 2011 at 1:53 pm

    Wonder what allowed the economy to rebound. Unemployment changed from 19% to 2% in a year??

  2. beowulf
    August 1, 2011 at 11:17 pm

    Basically, a fortuitous meeting in early 1938 at the Atlanta train station got the ball rolling (but it took WWII to get unemployment under 2%).
    Anyway in Atlanta, White House aide Harry Hopkins ran into the Warren Mosler of the day, Beardsley Ruml, who agreed to cut short his business trip to help Hopkins de-program the austerity-minded President at the nearby Little White House in Warm Springs. The intervention was a success. Soon after, FDR gave a speech adopting a new policy of aggregate demand management.

    What was particularly significant was the way Roosevelt explained the new proposals. In his first term, he had generally justified spending programs as ways to deal with particular targeted problems: helping the unemployed, subsidizing farmers or homeowners or troubled industries, redeveloping the Tennessee Valley. Now he justified spending as a way to bring the economy as a whole back to health.
    “We suffer primarily from a lack of buying power,” he explained in a fireside chat early in 1938 (its text drawn in part from a Beardsley Ruml memo). It was time for the government “to make definite additions to the purchasing power of the nation.”

    • wh10
      August 2, 2011 at 1:05 am

      doy. thanks. i feel dumb. didn’t realize it started so soon. man that is what you call rapid mobilization.

      • beowulf
        August 2, 2011 at 10:21 am

        Just to clarify, it did not all happen in a year. Unemployment didn’t move under 10% until 1941. What got us down to 2% (actually to 1.2% by 1944) was because, as JK Galbraith put, having solved the problem of unemployment in Germany, Hitler then set about solving it for his enemies as well.

  3. August 2, 2011 at 11:44 am

    Love the history. Thanks…

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