Sunday, July 17, 2011

When A Turn Toward Austerity Turned To Disaster


Four years into Franklin Roosevelt's first presidential term, the worst of the Great Depression seemed behind him. Massive jolts of New Deal spending had stopped the economic slide, and the unemployment rate was cut from 22 percent to less than 10 percent.
"People felt that there was momentum," U.S. Senate historian Donald Ritchie tells Guy Raz, host of weekends on All Things Considered. "Finally, there was the light at the end of the tunnel."
So Roosevelt, on the advice of his conservative Treasury Secretary Henry Morgenthau, decided to tackle the country's exploding deficits. Over two years, FDR slashed government spending 17 percent.
"All of a sudden," Ritchie says, "after unemployment had been going steadily down, unemployment shot up, the economy stagnated, the stock market crashed again. And now it seemed we'd come out of the Hoover Depression to go into the Roosevelt recession."
Similar decisions Roosevelt made about spending and austerity are being discussed at the White House right now. In the long term, both political parties say they agree that austerity is a good thing. But what about in the short term, while unemployment remains high?
Could austerity slow economic recovery?

http://www.npr.org/2011/07/16/138185648/when-a-turn-toward-austerity-turned-to-disaster

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