The New Deal: Roosevelt Recession (1937-38)


Figure 1.-- There is a popular myth that President Roosevelt ended the Depression and solved the unemployment proble, We hear Congressmen and other talkibng heads commonly expressing this opinion in TV intervon television. There is no doubt he want to and enacted program after program backed by massive defecit spending to do so. In fact he failed. Not only did he not end unemploymet, but unemployment spiked up as aesult of the Roosevelt Recession (1937-38). Many Americabns continued to live in great poverty. Here boys in Steritz, Illinois are gathering coal from a slag pile during 1939. Their parents could not fford to buy coal to heat their home. The Depression in America was not ended by the New Deal, but when war orders begn to flow in from Europe.

There is a popular myth that President Roosevelt ended the Depression and solved the unemployment proble, We hear Congressmen and other talkibng heads commonly expressing this opinion in TV intervon television. There is no doubt he want to and enacted program after program backed by massive defecit spending to do so. In fact he failed. The Roosevelt Administration which took office in 1933 did made substantial economic progress, although the statictics can be and often are manipulated for partisan purposes. Considerable economic growth was achieved. GDP growth averaged an impressive 9 percent. This was, however, from the severly dressed levels that existed when the President assumed office. The New Deal also reduced unemployment from from 25 to 14 percent, although a substantial part of that employment increase was Government jobs programs like the Worls Progress Administration (WPA). President Roosevely as the economy began to improve decided that he had to address the problem of rising defecits. He thus decided to balance the budget and cut deficit spending. At the same time, the Federal Reserve raised reserve ratio requirements for member banks which contraction the monetary base. The economy soon slumped back into recession. The most often sited reason for the recession which became known as the Roosevelt recession was the Presuident's attempt to molify conservative critics by cutting defecit spending. Commonly partisans site this as the reason for the recesion. In fact there are probably three major causes of the recession: 1) Administration cutting defecit spending, 2) the Federal Reserve contracting the monetary base, and 3) sharp Administration tax increases. The causes of the Roosevelt recession hae been studied at some length by economists. There is general agreement that these were the three major factors. There is no agreement as to the relative importance of these three factors. Milton Freedman has focused on the Federal Reserve’s tight monetary policy. [Freedman and Swartz, pp. 493-545.] The issue is complicated and can not be easily answered. What is important to bear in mind in addressing the literature is that some economists and even more politicans will draw conclusions based on ideology. Often Kensyean economists will fail to mention the tax increases. And free market ecomomists will down play the imporance of the spending cuts.

Sources

Friedman, Milton and Anna Schwartz. A Monetary History of the United States.






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Created: 9:13 PM 1/30/2013
Last updated: 9:13 PM 1/30/2013