Economic Malpractice

               Someone once defined insanity as repeating the same behavior and expecting different results. We are now in the midst of an economic policy debate in which conservatives are preaching a reasonable facsimile of an economic policy that failed in 1937.

               By the spring of 1937 the moderate expansionist policies of the Roosevelt Administration had aided the economic recovery. Profits, wages and industrial production had reached 1929 levels. Even so, unemployment was still at 14.3% . Unemployment had peaked at 25% in 1933. We had been in a very deep hole and were digging our way out.

               At that moment, the Roosevelt Administration suffered an attack of economic orthodoxy and fiscally retreated in an attempt to balance the budget. Roosevelt had not fully digested the Keynesian prescription for fiscal policy during periods of high unemployment

It was the wrong medicine at the wrong time. The result of this return to fiscal orthodoxy was a 37% drop in manufacturing output to 1934 levels. Unemployment surged to 19% by 1938.

Conservatives are, once again, preaching a return to fiscal orthodoxy in the midst of recovery. Why should the medicine work this time? The economic version of a colon cleansing may make sense during a period of inflation but is not the proper prescription for continuing recovery.