Subscribe!
1937 again

by Brian Hollander
August 04, 2011 10:33 AM | 1 1 comments | 12 12 recommendations | email to a friend | print
Slowly, with great pain, the New Deal had been inching the Depression, the one that began in 1929 with the stock market crash that unregulated banks had wrought with their reckless behavior, back into something manageable. The unemployment rate had dropped, that’s right, dropped, back to 10 percent from the unimaginable 25 percent it had been during the Depression’s darkest days. The federal government had spent plenty of money on jobs programs like the WPA, building hydroelectric dams and stringing electricity to rural areas, and, in 1933, had instituted the Glass-Steagall Act that separated banks from insurance companies and investment houses, effectively regulating them.

Those on the right grew restive. There was a deficit, the dollar was weak, the fed had excess reserves. They clamored for a balanced budget and less government involvement.

Under pressure, FDR was forced to give in.

As Daily Finance.com put it: “Congress cut spending and the Fed increased bank reserve requirements by about 50 percent. The federal budget went from New Deal stimulus-based deficits to essentially a balanced budget in 1938.

“And what happened? The premature withdrawal of stimulus and Fed tightening were major factors that tipped the U.S. economy back into recession in 1937. Prices, which had experienced modest support from New Deal programs that increased demand, soon started falling. Deflation took hold, and the U.S. unemployment rate, which had fallen from more than 20% in 1933 when FDR took office to about 10% in 1937, started rising again in 1938. As most economists now agree, the premature removal of stimulus and monetary easing lengthened the Great Depression.”

It wasn’t until World War II that the jobless rate sank back into the single digits and the economy began moving again as the government spent liberally preparing for conflict and fighting it.

So we can look back on the past year and a half, as the debate over what to do with our ailing economy, as the conversation has tacked rightward toward cutting federal spending and less regulation, again, and have a model from history of what to expect.

It’s a damned shame to let these lessons slide by. Sure, economists can disagree about causes and effects, but, hey, the map is right in front of us. Hopefully, we’ll find a way out without a big war.

And about that two percent tax cap? While it will surely have an effect on school and county budgets, it will have no effect whatsoever on town budgets. Why? Well, to override and spend what you want you need a 60 percent supermajority voting in favor. Since the public votes on school spending, you’d very rarely get 60 percent of the ballots in favor. A landslide in any election is 55 percent. In the county, it’s the legislature that votes on the budget, and a controversial measure to raise taxes more than two percent would need 14 votes in what will be our 23 person legislature. Difficult, but possible.

But on a five person town board, you need three votes to reach 60 percent…and that’s what you need to pass any budget anyway. Without that, no budget passes, even if it’s under the two percent tax increase limit. So on that level, nothing has changed. ++

Comments
(1)
Comments-icon Post a Comment
Christian Gehman
|
August 06, 2011
Now, me -- I['m for TRICKLE UP economics. It's Jeffersonian -- "Money belongs in the pockets of the people." Get BP to pay out the rest of the Gulf Oil Spill money to every adult taxpayer or Social Security recipient living within 10 miles of the Gulf Coast in 6 equal month installments. Special Fineberg has about 15 Billion left. That would help. And grant every American taxpayer whose income is under $150,000 per annum from any source six equal monthly payments of $500 ...

Raise the federal minimum wage in two steps to $10.00 per hour.

Increase Social Security payments to where they would be anyway if they were properly indexed for inflation.

What we need now is more money in circulation. There's no money at the bottom -- that's a problem that can't be solved with a corporate stimulus package.

Has anyone else noticed that having the nation's credit rating down-graded just raises the interest rate we pay to China and the other holders of the debt.

Oh and by the way -- why can't we make the super rich and the rich (anyone with wealth over a million dollars worth (not property -- wealth, e.g. income producing assets) pay tax at the same rate as the rest of us on their total income no matter how derived?

To paraphrase Anatole France: "With majestic impartiality, the law allows rich and poor alike to benefit from the tax break allowed on corporate jet ownership, oil depletion allowances, capital gains etc. etc. etc."

Let the rich pay a fair share -- for a change. Read Lundberg, The Rich and the Super Rich.

And congratulations to Ned Houst for the solar panels and the wind turbine --- now, how about something similar for the Youth Center?

Christian Gehman

Past President, Woodstock Youth Center

please post this in the print edition to, Brian!

Comment Guidelines
Note: The above are comments from the readers. In no way do they represent the view of Ulster Publishing.