The New Deal and Recovery, Part 11: The Roosevelt Recession, Continued

George Selgin" Massive jolts of New Deal spending had stopped the economic slide, [but the economy crashed again when] over two years, FDR slashed government spending 17 percent. " (From a 2011NPR presentation.)Inthe last installment of this series, I discussed the hypothesis that the 1937 collapse resulted from an ill-conceived tightening of monetary policy to which both the Fed and the Treasury contributed.While authorities differ in the degree of responsibility they assign to each, there ' s widespread agreement that, between them, instead of merely extinguishing a boom, as they intended to do, both Fed and Treasury officials helped bring about a crash that undid much of the post-1933 recovery.But monetary explanations are far from the only ones that have been offered for the 1937 downturn. As I ' ve said, there seems to be no end of potential culprits in that calamity. Here I consider some others, starting with the claim that the downturn was the result, not of monetary developments, but of a return to fiscal austerity.Austerity, New Deal StyleWorries about over-speculation and looming inflation that led the Fed and the Treasury in 1936 to take up the cudgels against overly-easy monetary policy had their fiscal counterpart in the fear that the federal debt was reaching unsustainable levels. The result was a renewed attempt to clamp-down on deficits by reining-in federal expenditures and collecting new taxes.Although Treasury Secretary Henry Morganthau was this effort ' s ...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs