The history lesson Obama has ignored

[dtotire]

The history lesson Obama has ignored

This originally appeared at New Deal 2.0




"The economic experiments of President Roosevelt may prove, I think, to be of extraordinary importance in economic history, because for the first time -- at least I cannot recall a comparable case -- theoretical advice is being taken by one of the rulers of the world as the basis of large-scale action. The possibility of such a remarkable event has arisen out of the utter and complete discredit of every variety of orthodox advice. The state of mind in America which lies behind this willingness to try unorthodox experiments arises out of an economic situation desperate beyond precedent."

- John Maynard Keynes, January 1934


Just under three quarters of a century ago, a group of conservative economic advisers close to Franklin Roosevelt informed the President that they were worried about the rapid rate of growth in the US economy. Since 1933, when FDR took over at the height of the Great Depression, the economy had been expanding steadily, at an average rate of 14 percent per year. Schooled as most of these advisors were in the tenets of economic orthodoxy (which called for cuts in spending during an economic downturn), and unsure of the effects of the Keynesian-style deficit spending that the administration had been engaged in under the terms of the early New Deal, the President was advised to cut the budget, reduce deficit spending and tighten the money supply as a means to stave off inflation. Heeding their word (and no economist himself), FDR did just that.

The results were an unmitigated disaster.

Thanks to the Administration’s decision to move away from the increasingly Keynesian policies it had been following — policies that saw the unemployment rate fall from a high of 25 percent in 1933 to 14 percent by 1937 -- FDR launched one of the sharpest economic downturns in American history-the so-called "Roosevelt Recession" of 1937-38. In just a few short months, the GDP declined by 13 percent; industrial production by 33 percent; wages by 35 percent and an estimated four million people lost their jobs. No fool, FDR quickly reversed himself and went back to Congress to seek a massive stimulus bill to put people back to work and repair the damage to the Depression-era economy. Within three months growth had returned and the economy was back on track.

more:
http://www.salon.com/books/history/index.html?story=/politics/war_room/2011/08/04/obama_keynes_fdr

[xchrom]

1. Recommend

[COLGATE4]

2. Our Administration's response: "History?? We don't need no stinkin'

History". Sad, but true.

[JAnthony]

3. A lesson we should all have learned a while ago. But unfortunately

Tea Baggers and other Republicans in Congress don't learn history at ALL!

[Uncle Joe]

4. Kicked and recommended.

Thanks for the thread, dtotire.

[Overseas]

5. K&R. Demand Side Economics Now Please!