That 1937 Feeling

[dtotire]

By PAUL KRUGMAN
Published: January 3, 2010

Here’s what’s coming in economic news: The next employment report could show the economy adding jobs for the first time in two years. The next G.D.P. report is likely to show solid growth in late 2009. There will be lots of bullish commentary — and the calls we’re already hearing for an end to stimulus, for reversing the steps the government and the Federal Reserve took to prop up the economy, will grow even louder.

But if those calls are heeded, we’ll be repeating the great mistake of 1937, when the Fed and the Roosevelt administration decided that the Great Depression was over, that it was time for the economy to throw away its crutches. Spending was cut back, monetary policy was tightened — and the economy promptly plunged back into the depths.

This shouldn’t be happening. Both Ben Bernanke, the Fed chairman, and Christina Romer, who heads President Obama’s Council of Economic Advisers, are scholars of the Great Depression. Ms. Romer has warned explicitly against re-enacting the events of 1937. But those who remember the past sometimes repeat it anyway.

As you read the economic news, it will be important to remember, first of all, that blips — occasional good numbers, signifying nothing — are common even when the economy is, in fact, mired in a prolonged slump. In early 2002, for example, initial reports showed the economy growing at a 5.8 percent annual rate. But the unemployment rate kept rising for another year.



more:
http://www.nytimes.com/2010/01/04/opinion/04krugman.html?ref=opinion

[midnight]

1. I wonder what important reasons are there for repeating 1937 and what could they be?

[dtotire]

2. 1937

We don't want to repeat 1937. What we did then was to cut back government spending while the economy was still recovering. This ended the recovery and unemployment increased significantly. We must continue the stimulus for another year or so, even if we increase the deficit.

[rurallib]

3. Probably more than a year

And don't stop the spending all at once. Slow it gradually.

[Captain Hilts]

4. And FDR had promised a progressive, even radical, presidency in his '36 acceptance speech. nt

[Name removed]

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