I might have picked a title like: "What Milton Friedman Knew about the 1937-38 Collapse." But, in any case, my newest piece starts of this way
Does the 1937-38 economic collapse, the so-called "depression within the Depression" offer any lessons on what we should do now? In 1937, it seemed that things were improving, some light was seen in the Great Depression, but unemployment suddenly jumped from 14.3 percent in June 1937 to 19 percent in June 1938. With the unemployment rate stuck at 9.6 percent, the Obama administration is planning to unveil what would be its third stimulus package. Supporters are pointing to the late 1930s to justify yet another increase government spending.
Today Keynesians are out in full force defending the massive $1.3 plus trillion deficit that we have run since Obama became president, warning that cutting it would lead to a scenario similar to what we saw in the late 30s.
Economist and New York Times columnist Paul Krugman, has this to say in The Times earlier this summer, declaring that those opposing more government spending were pointing us towards disaster: "It raises memories of 1937, when F.D.R.’s premature attempt to balance the budget helped plunge a recovering economy back into severe recession."
Last Saturday, Yale’s self-described "New Deal economist" Robert Shiller made the same point in an interview with The Wall Street Journal, attacking the "concern about the national debt" and advocating more government spending.
Both men point out that the federal deficit declined from $2 billion in 1937 (in inflation adjusted dollars, about $30.3 billion today) to a near balanced budget in 1938. . . .
Labels: Economy, stimulus, unemployment