What is the Roosevelt Recession?

What is the Roosevelt Recession?

The Roosevelt recession refers to a period from mid-1937 to 1938 when the economic recovery from the Great Depression temporarily stalled, lasting about 13 months. The unemployment rate jumped from 14.3% to 19.0%, the first increase since FDR took office, and manufacturing output fell by 37% to 1934 levels. In response, in April 1938 Roosevelt got $3.75 billion in new spending from Congress, which was split among various recovery agencies, and the economy once again began to recover.

What’s the significance?

Economists still argue over what caused this dip, but Keynesians point to FDR’s spending cuts in June of 1937. Some of his advisers urged him to balance the budget, and he cut government spending. After FDR reversed course in 1938 and went back to deficit spending, the unemployment rate began to fall, and kept falling until there was virtually no unemployment by 1945.

The Roosevelt recession can serve as a lesson for our current situation. Even as the economy’s recovery is still extremely fragile, conservatives are calling on President Obama to reduce the deficit and cut spending. But many progressives fear that it would only repeat FDR’s mistakes and choke off any chance for economic growth.

Who’s talking about it?

Roosevelt historian David Woolner warns against repeating the mistakes of the Roosevelt recession by adopting austerity measures…Paul Greenberg of the Arkansas Democrat-Gazette worries that our policies are starting to look like 1937 all over again…Congressman Jim Hines of Connecticut told voters “if we get too restrictive too quickly it will bring us to a repeat of 1937.”