Skip to main content

Currie and the 1937-38 recession

Lauchlin Currie, the first economist to work in the White House (in 1939, that is, before the creation of the Council of Economic Advisers, CEA, in 1946) and main advisor to Marriner Eccles at the Fed, said this in a memo to Eccles in October 1937:
“When the Government disburses more to the community than it collects in taxes, it adds to national buying power and the demand for the products of industry. The excess of spending over tax receipts in the years 1935-36 was the primary factor in increasing national income, in increasing Federal revenues, in increasing national demand for goods and, hence, in finally making it profitable to make additions to plant capacity in 1936.

At a time when the national income is shrinking the Government is seeking to raise revenues and cut expenditures this merely intensifies the deflationary trend. We are in danger of starting again the hopeless attempt to increase Federal revenues when the national revenue is shrinking. The attempt failed in 1929-32. It will fall again. The only condition under which the Federal budget can be technically balanced in 1939 is a reversal of the present deflationary trend.”
I hope a memo like this has been sent to Bernanke. Hope springs eternal.

Comments

  1. In the 1930s, the marginal tax rate on the rich in the US was over 90%. In that situation, one could not raise taxes on the rich to redistribute to the middle. One had to run deficits. Now, the way to increase aggregate demand is to raise taxes on the rich (from 35% to 90% for people who earn more than, say, $10 million per year), and redistribute to the middle (say, by making public colleges close to free again). That would increase aggregate demand, would improve skill of work force, and would not increase the deficit. Saying that deficit spending today is equivalent to deficit spending in the 1930s is misleading. In the 1930s, the wealthy were doing their bit to save the economy already. Only then was deficit spending necessary.

    ReplyDelete
    Replies
    1. Income redistribution is NONSENSE, Owl. The rich don't pay taxes, observe the past 30 years as the rich (1%) have garnered a larger and larger share of overall income while the 99% have continued to sink like a rock economically. The federal government DOES NOT need revenue and can NEVER be forced to "borrow" for infrastructure projects. The ONLY limitation is the banks. Unless the banks and their colleague "privatisors" get their cut of the action and a massive cut at that, things like infrastructure projects "benefitting the Middle Class," ain't gonna happen.-SteveD

      Delete

Post a Comment

Popular posts from this blog

A few brief comments on Brexit and the postmortem of the European Union

Another end of the world is possible
There will be a lot of postmortems for the European Union (EU) after Brexit. Many will suggest that this was a victory against the neoliberal policies of the European Union. See, for example, the first three paragraphs of Paul Mason's column here. And it is true, large contingents of working class people, that have suffered with 'free-market' economics, voted for leaving the union. The union, rightly or wrongly, has been seen as undemocratic and responsible for the economics woes of Europe.

The problem is that while it is true that the EU leaders have been part of the problem and have pursued the neoliberal policies within the framework of the union, sometimes with treaties like the Fiscal Compact, it is far from clear that Brexit and the possible demise of the union, if the fever spreads to France, Germany and other countries with their populations demanding their own referenda, will lead to the abandonment of neoliberal policies. Aust…

A brief note on Venezuela and the turn to the right in Latin America

So besides the coup in Brazil (which was all but confirmed by the last revelations, if you had any doubts), and the electoral victory of Macri in Argentina, the crisis in Venezuela is reaching a critical level, and it would not be surprising if the Maduro administration is recalled, even though right now the referendum is not scheduled yet.

The economy in Venezuela has collapsed (GDP has fallen by about 14% or so in the last two years), inflation has accelerated (to three digit levels; 450% or so according to the IMF), there are shortages of essential goods, recurrent energy blackouts, and all of these aggravated by persistent violence. Contrary to what the press suggests, these events are not new or specific to left of center governments. Similar events occurred in the late 1980s, in the infamous Caracazo, when the fall in oil prices caused an external crisis, inflation, and food shortages, which eventually, after the announcement of a neoliberal economic package that included the i…

What is the 'Classical Dichotomy'?