America is turning into a new 1937 scenario

All the signs are pointing to the fact that America is headed for a repeat of 1937. The Republicans are saying over reaching and over spending by Washington were responsible for all the troubles the country is facing today. Mitt Romney is blase enough to say that the situation has been worsened by the stimulus measures and has brought about the crisis in the employment sector.

It is next to impossible to prove that disaster has been averted. It will be a point of argument among pundits for many years henceforth. But the accusation in the current year that extravagant spending by the federal government is the cause of the present crisis is a pointer to what will be one of the major issues this coming fall.

It makes the scenario similar to that of 1936-37 when the Democratic government became worried about spending to hasten on recovery and this brought on the Roosevelt Recession from 1937 to 1938. It was a reaction laced with panic and self-doubt to the severe public criticism. The government was compelled to cut down positive measures that were proving to be effective like WPA.

But to appease the critics money supply was cut, interest rates increased in such a way that economic recovery was blocked just at a time when the nation had just returned to the pre-depression levels of 1929. This second swooning edged on further intervention by the government in 1938 but by then the gloom had set in to continue. It continued till World War II gave the economy a kick start.

Is America heading the same way once more? At a discussion at Commonwealth Club of California recently Dr. Joseph Stiglitz of Columbia University pointed out how the present happenings are pointing in that direction. The host of the talk was Andrew Leonard of Salon.com. The speech was brilliant, compelling laced with common sense, professionalism, historical outlook and political insight.

Stiglitz was formerly an advisor of Clinton. He is also the author of Free Fall and can be said to be a practical and conservative follower of Keynes. He knows where the buried bodies lie. When asked how the Tea Party moves would impact on the future economic course he noted that government steps had saved the country from the claws of a depression.

He noted that the people confused TARP that had benefited the lenders and banks with the stimulus measure – the latter being too restricted according to him to be really successful in preventing a further fall.

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