Pharos-Tribune

Online only

November 20, 2012

2013 looks a lot like 1937 in 4 fearsome ways

NEW YORK — Will 2013 be 1937? This is the question many analysts are posing as the stock market has dropped after the election. On Nov. 16, they noted that industrial production, a crucial figure, dropped as well.

In this case, "1937" means a market drop similar to the one after the re-election of another Democratic president, Franklin D. Roosevelt, in 1936.

The drop wasn't immediate in that case; it came in the first full year after the election. Industrial production plummeted by 34.5 percent. The Dow Jones Industrial Average dropped by half, from almost 200 in early 1937 to less than 100 at the end of March 1938.

It's hard to imagine stock indexes dropping by half today, or unemployment rising past 15 percent, as they did in the "depression within the Depression." But the parallels are visible enough to be worth tracing. They have to do with the danger of big government, and can be captured in a few categories.

— Pre-election spree that sets records. In the old days, federal spending amounted to about 19 percent or 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.

That didn't happen. Instead the federal government continued to spend. Most important, 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, a similar barrier was breached. Up until 1936, 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.

Text Only | Photo Reprints
Online only
Hyperlocal Search
Premier Guide
Find a business

Walking Fingers
Maps, Menus, Store hours, Coupons, and more...
Premier Guide
Poll

Should mushroom hunters be allowed to forage off-trail in Indiana state parks?

Yes
No
Undecided
     View Results
Featured Ads
AP Video
Captain of Sunken SKorean Ferry Arrested Raw: Fire Destroys 3 N.J. Beachfront Homes Raw: Pope Presides Over Good Friday Mass Raw: Space X Launches to Space Station Superheroes Descend on Capitol Mall Man Charged in Kansas City Highway Shootings Obama Awards Navy Football Trophy Anti-semitic Leaflets Posted in Eastern Ukraine Raw: Magnitude-7.2 Earthquake Shakes Mexico City Ceremony at MIT Remembers One of Boston's Finest Raw: Students Hurt in Colo. School Bus Crash Raw: Church Tries for Record With Chalk Jesus Raw: Faithful Celebrate Good Friday Worldwide Deadly Avalanche Sweeps Slopes of Mount Everest Police Arrest Suspect in Highway Shootings Drought Concerns May Hurt Lake Tourism Vermont Goat Meat Gives Refugees Taste of Home Calif. Investigators Re-construct Fatal Bus Cras Mayor Rob Ford Launches Re-election Campaign Appellate Court Hears Okla. Gay Marriage Case
Parade
Magazine

Click HERE to read all your Parade favorites including Hollywood Wire, Celebrity interviews and photo galleries, Food recipes and cooking tips, Games and lots more.