The Great Depression began in the fall of 1929. For years, Congress and the Hoover administration tried to keep the Federal budget deficit down, restraining spending increases to well below what was needed and attempting to balance them with tax increases – while the economy continued to collapse and jobs continued disappearing by the millions. By the time FDR took office in 1933 and began the New Deal, this had been going on for almost three and a half years. Unemployment was 25%.
Economic expansion began in April of 1933, and continued going strong under the New Deal for the next four years.
By 1936, GDP and industrial production were above their pre-crash peaks; unemployment was down to about 15% and falling rapidly. And by 1937, as reported in in this post from the Campaign for America’s Future:
A second cyclical downturn officially began in May 1937 when FDR, always a fiscal conservative, mistakenly thought the economy had become self-sustaining and slashed public spending programs to balance the budget. These harsh and premature spending cuts caused another severe recession that ended after 13 months in June 1938.
When the economy again contracted sharply in late 1937 and early 1938, FDR quickly reversed course and rapid growth immediately began again. GDP soared by 10.9 percent in 1939 and industrial production soared by 23 percent.[ Read more: The “FDR Failed” Myth ]
Roosevelt learned his lesson quickly: With unemployment still high, it was not the time to cut spending. Economic recovery had to come first; without recovery, measures to reduce the deficit would be doomed.
A similar story, on a smaller scale, is playing out in front of us today. 2007’s financial crisis precipitated a financial and economic collapse in 2008. Barack Obama took office in 2009, and economic recovery began immediately, and continued under Obama’s stimulus spending. Since Obama’s stimulus was relatively paltry and lacked the scope and scale of FDR’s New Deal, recovery was not as robust, but it did continue until stimulus spending began to sputter. And now, two years later, we’re once again about to prioritize the deficit above jobs and the economy during a time of high unemployment.
Today’s Congress has forgotten this lesson from history. Republicans are dead-set on repeating the mistake of 1937 because they desperately refuse, despite all evidence, to believe the obvious. Obama and Congressional Democrats are willing to follow them down this cliff, allowing Republicans to sacrifice American jobs and the economy on the altar of their ideological purity.
Will our economic story follow the outline of the Great Depression’s, complete with an avoidable mistake that harms millions of people’s lives? Do you want the second chart to show a second sharp sustained downward dip, like the first chart shows in 1937-1938?