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. ++