Recently I was asked a series of questions by a journalist wishing to write an article about the nation’s current economic situation. What follows in this article and others following is one of those questions and my answer to it.
How bad is the situation really? Certainly that’s an important factor to consider when judging the costs/benefits of a stimulus package?
The situation is serious but nothing compared to the Great Depression right now. I stress right now, because if the government attempts to follow FDR’s approach in the 1930s, we could see a ten year deep recession. People are uncertain and have real concerns over their financial situation now and in the future. Why was the Great Depression the Great Depression rather than a simple recession – why did recovery take so long? The most important factor was a combination of errors on the part of the Federal Reserve and the hostile attitude that the FDR administration had toward the private sector. Roosevelt said that businessmen as a class were “stupid.” Business leaders sincerely believed that the government was in evil hands…and preparing the way for socialism, communism, or some other variety of anti-Americanism. In 1935, 1936, and 1937 the Roosevelt administration requested tax legislation aimed at punishing the wealthy. This created a business hostility toward Roosevelt and resulted in an unwillingness to invest.