In 1937, under great pressure from critics, President Franklin D. Roosevelt cut back federal spending on the New Deal after four years of greatly increased spending, which had brought down the unemployment rate and given millions of Americans hope for the future, with the growing number of jobs and economic expansion resulting from people having income increases.
Conservatives then, as now, condemned the New Deal spending, and Roosevelt, unfortunately, reacted to it, and the result was the infamous collapse of the economy again, what is referred to as the Recession of 1937-1938 within the era of the Great Depression.
The result of what was done due to conservative pressure was the following:
1. The Dow Jones Industrial Average dropped 49 percent from its peak in 1937 by the year 1938.
2. Manufacturing production dropped by 37 percent, greater than from 1929-1933 under President Herbert Hoover.
3. Unemployment percentages, which had reached 25 percent in 1933 as Hoover left the Presidency and then declined to 14 percent, suddenly rose to 19 percent because of the cut in federal spending, and the corresponding loss of jobs all over again.
4. Price declines, due to lack of spending, led to deflation, which is far worse than inflation.
The events of the past week, with steep stock market declines, and gyration of stock prices like we have never seen them before, is a danger sign, a warning sign, that we could have a disastrous economic collapse that could be even worse than 2008!
So the urging of Nobel Prize winning Paul Krugman of Princeton University and the New York Times, and of former Labor Secretary, (Bill Clinton) and University of California at Berkeley Professor Robert Reich that MUCH MORE federal spending is needed to stimulate the economy, and that budget cuts on a massive scale with no tax increases is a disastrous policy, needs to be listened to by government leaders!
However, with a GOP House majority, and the fact that Republicans can filibuster in the Senate with their 47 members, it makes such a possibility just about impossible!
The American people, by their ignorance or lack of understanding, have caused this mess by creating a split Congress, with, of course, corporate spending endorsed by the Citizens United case of the Supreme Court, playing a major role as well in causing a disastrous economic situation, which will cause much suffering, and guarantee the worst economic conditions since the Great Depression will become far worse in the next two years, until the next Congress, hopefully, will reverse course, but only if the Democrats win both houses and keep the White House!