2013 Looks a Lot Like 1937 in Four Fearsome Ways

"2013 Looks a Lot Like 1937 in Four Fearsome Ways"

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Original Article by Amity Shlaes of Bloomberg

In this article, Shlaes asks the intriguing question, "Will 2013 be 1937?" This is the question many analysts are posing as the stock market has dropped after the U.S. election. Shlaes explains that "1937" means a market drop similar to the one after the re-election of another Democratic president, Franklin D. Roosevelt, in 1936.

In the past, federal spending amounted around 19.5 percent of gross domestic product. That ratio was so reliable that economists took it as a given, the American normal, from which divergence was unnatural and temporary. By the old 19 percent rule, federal spending would have dropped back once the worst of the 2008 economic crisis passed.

Even in 2012, when the crisis was long past, the government went on a spree, spending the equivalent of 24.3 percent of the economy, more than the 24.1 percent for the year earlier. In 1936, when a similar barrier was breached, federal spending flowed at smaller levels than the spending by states and towns combined, with wartime being the exception. Roosevelt slowly ratcheted up the outlays, and in 1936, Washington spent more than the states and towns. This shift was dizzying for a country based on the principle of federalism, of strong states.

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