1937, REDUX…. When FDR launched the New Deal investments in the early 1930s, it improved the economy and the United States started to pull out of the Great Depression. In 1937, Democrats decided to start taking Republican complaints seriously, and emphasized spending cuts and deficit reduction over economic growth. The economy tanked, the recovery ended, and a recession began.
Paul Krugman, reporting from Berlin, sees contemporary parallels.
Suddenly, creating jobs is out, inflicting pain is in. Condemning deficits and refusing to help a still-struggling economy has become the new fashion everywhere, including the United States, where 52 senators voted against extending aid to the unemployed despite the highest rate of long-term joblessness since the 1930s. […]
[D]espite these warnings, the deficit hawks are prevailing in most places — and nowhere more than here [in Germany], where the government has pledged 80 billion euros, almost $100 billion, in tax increases and spending cuts even though the economy continues to operate far below capacity.
What’s the economic logic behind the government’s moves? The answer, as far as I can tell, is that there isn’t any.
President Obama warned world economic leaders in a letter this week that the global recovery could founder on growing divisions over issues they pledged a year ago to resolve cooperatively.
As a key world summit in Toronto approaches next week, Obama referred — sometimes elliptically but still unmistakably — to a lengthening list of disagreements among the G-20 group of nations, including China’s overvalued currency and Europe’s suddenly aggressive budget-cutting.
Instead of meeting in Toronto to review the progress made toward goals announced last year in Pittsburgh, when there was a buoyant mood of world cooperation, the coming session stands as a fresh reckoning. […]
[There has been] a surge in budget-cutting plans that the IMF has said are appropriate for the most indebted nations, such as Greece and Spain, but that risk undercutting recovery in countries where government debt is not as urgent a problem and growth remains tentative. France, Germany and England, the drivers of the European economy, have all announced austerity plans.
In the letter obtained by the Washington Post, Obama told his international colleagues, “I am committed to the restoration of fiscal sustainability, but it is critical that the timing and pace of consolidation in each economy suit the needs of the global economy, the momentum of private sector demand, and national circumstances.”
Vice President Biden added yesterday, “This is not a time to take our foot off the accelerator here. We still need to continue to create jobs and spur job growth.”
Republicans and center-right Democrats no longer want to hear this. Here’s hoping the rest of the world is more sensible.