Headed for another 1937

Amity Shlaes

Bloomberg.com

The year 2013 is already beginning to look a lot like 1937, said Amity Shlaes. Back then, a steep market drop kicked off a “depression within the Depression” following the re-election of another Democratic president, Franklin Roosevelt. The parallels to today are striking, and they all “have to do with the danger of big government.” Both Obama and FDR went on unprecedented pre-election spending sprees: FDR’s Washington spent more than states and towns combined, a peacetime first; this year federal spending, rarely more than 19 percent of GDP, topped 24 percent. Both presidents vowed to open their second terms with “sober budget-cutting” even as they ferociously attacked the rich. Both had saddled the economy with major legislation that took effect after their re-elections—the health-care law in Obama’s case, Social Security in FDR’s. That’s why today’s market analysts worry that we’ve paved the road to another 1937. When government expansionists occupy the White House, they “tend to revert to expanding government.” And that can “spook markets and employers, whatever the decade.”