Atheist pseudo-economist Paul Krugman praying to God that Obama resist cutting deficit spending.
A favorite New Deal myth promoted by the likes of pseudo-economists Paul Krugman, Robert Reich* and the government-is-the-answer die hard Left is that FDR's unprecedented government stimulus spending and economic intervention to end the Great Depression was at best a half measure; and that Roosevelt's timid response to the crisis caused the economic disaster of 1937/1938 when the market crashed and lost half its value, and millions of jobs vanished in the private sector.
*I call them pseudo-economists because their focus is not on the creation of wealth but on its spending and spreading..
Krugman, Reich et al tell us ad nauseum that after FDR was reelected in 1936 he was hijacked by Republican and Democrat deficit hawks in Congress (the heartless penny pinching SOBs) and agreed to cut government spending roughly in half in order to balance the budget which was putting us billions in debt; and that this misguided step caused a reversal in the progress made by the New Deal till then. Indeed, by 1937 unemployment fell from a Depression high of 25% in 1933 to 14%, while GDP grew annually by a robust 9%. In fact when FDR started his second term, it looked like happy days were around the bend and the economy was irreversibly on the mend. But then things took an ugly turn because of FDR's fiscal rightward lurch. For in that fatal year when FDR "lost nerve" he ruined the recovery with spending cuts that threw millions out of work sending the jobless rate soaring to 19%-as if those jobs were government dependent. This is what we're told by Krugman, Reich and the lying, reckless, spendthrift Left in their false ideological analysis.
"Big government is beautiful," assures little Bob Reich to the biggest spender in world history.
For the facts relate a different tale; a tale that government spending in 1937 was higher than in 1935, and somewhat lower than in the following year. A tale that the huge decline in the deficit from $4.3 billion in 1936 to $2.2 billion in 1937 was due to a rise in federal tax revenues, not cuts in federal outlays. By 1937 FDR's faith in government stimulus spending (supported by a public that reelected him by a landslide) remained unchanged and he was not about to quit when it seemed so much progress had been made. By 1937 joblessness was still at double digits and FDR certain in his cause wasn't going to rest until the Depression was over and good times returned. In short, like Krugman, Reich and everyone on the Left FDR believed in SPEND BABY, SPEND! and stayed the New Deal course.
Indeed, in the dread year of 1937 (that Krugman and Reich warn Obama not to repeat least the economic consequences cause his election defeat) government anti-Depression spending was $7.6 billion-a staggering sum for those days*. And contrary to the Leftist lie that New Deal spending hit a low that year this $7.6 billion was $1.1 billion more than FDR spent in 1935* (a "recovery" year); and less by only $600 million than he spent in 1936**. That spending $1.1 billion more than in 1935 when the jobless rate dived and millions returned to work could kill millions of jobs by the end of 1938 is a fact ignored by the Reichs and Krugmans to avoid the real reasons for the crash of 37: unionism, the minimum wage, price fixing on wheat, steel and other things and punishing corporate taxation to pay for deficit spending; all these combined to kill jobs, investment, exports and confidence as the economy slid into a new and dire depression. Indeed, in 1939 speaking before Congress on behalf of FDR Treasury Secretary Henry Morgenthau sadly announced that New Deal experimentation in deficit stimulus spending had failed; and that all that could be shown for the billions spent (going back to Hoover) was a growing national debt ($40 billion at the time****) and continued depression and despair ended by the war.
*Adjusted for inflation $7.6 billion in 1937 is roughly the equivalent of about $125 billion today.
** Spending in 1935 was $6.5 billion
*** Spending in 1936 was $8.2 billion
****Adjusted for inflation $40 billion in 1939 is roughly the equivalent of $800-$900 billion today.
OBAMA'S DILEMMA
Like most Leftists Obama is spooked by 1937 and fears a setback to the economy and a double dip recession if he cuts government spending. For Obama's bought into the myth that FDR's spending cuts brought on the double dip depression* of 1937; and he fears that if he goes that route and drastically cuts the deficit, too much stimulus will be taken from the economy and will ruin the weak recovery-and his chances of reelection. In other words, Obama's in a dilemma: either do little or nothing about the worsening deficit and debt and hope for signs of a robust recovery before Election Day-campaigning on a platform against Republican change; or he can cave into the GOP and cutting the deficit chance ruining the weak recovery with a double dip recession and losing in 2012. This is the struggle taking place in Obama's mind as the national mood is one of deepening gloom and loss of confidence in his leadership.
*Most economic historians call it "a recession within the Depression." But as it seemed the country was growing out of the Depression it dipped back into it.
For historical data from the OMB on Federal Receipts/Outlays/Surpluses and Deficits for the Great Depression years and before click
here and go to page 21.
Hoover and FDR: Two sides of the same Liberal coin. Both men believed as Hoover famously said "The only thing wrong with capitalism is the capitalists." FDR was Herbert Hoover with great charisma, charm and personality.
Postscript: Penny Pinching Herbert Hoover?
The mythical Herbert Hoover of the Left is that of an ultra rightwing, laissez faire, do nothing capitalist who wouldn't lift a finger to help the starving unemployed masses of the Depression era (remember Hooverville?); and whose response to the recession of 1929 was to drastically cut federal spending and balance the budget, thus turning a recession into the Great Depression.
Ironically, the real Herbert Hoover of history was a big government Progressive who supported Teddy Roosevelt's Progressive Party in 1912 and leftist transformational agenda with near universal healthcare at its center. In fact, because of Hoover's admiration for Teddy Roosevelt and belief in Progressivism cousin Franklin urged him in 1920 to seek the Democrat presidential nomination, with him as his running mate (see). In fact, when Hoover the "penny pincher" took office in 1929 he inherited a large budget surplus from Coolidge which he quickly spent out of desperation to stimulate and jump start the economy into recovery. By his last year in office Hoover in fact ran up a deficit of $2.7 billion (till then the third largest in US history) with a national debt of $16 billion-FDR raised hell over this in the 1932 campaign promising an end to debt and a balanced budget.
As Hoover's deficits and debt were miniscule compared to FDR's* he may have seemed like a "heartless penny pinching cur," who simply didn't do enough to relieve the suffering masses and put them back to work. But in comparison to all his predecessors from Washington on Hoover was the biggest spending President in US peace time history. As Hooverism with its public works programs, propping up of businesses and high taxes on the rich (63% to pay for his deficits) was the New Deal in embryo Hoover in fact was a real Progressive hero who tried to do good but failed like his well meaning successor. But because Hoover's liberal policies turned a recession into a worse catastrophe the Left demonizes and disowns the man turning him into the capitalist enemy while extolling FDR as a national savior whose failed New Deal was rescued by the war. Hoover and FDR are two sides of the same Liberal coin. And the era they began is now drawing to a
close with Obama's defeat in 2012 being the curtain fall.
*As I said above by 1940 the national prewar debt was $40 billion vs.$16 billion in 1932.
Major websites linking this piece are as follows (click and see):