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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.


  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.

    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


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