Muse of the Week: Recession (Again?)

Interesting article in the NYT about the parallels between our current economic situation and the recession-within-the-Depression of 1937-38.

The author makes some interesting points. As usual, there are elements of this argument that can be used to bolster both sides of the political aisle, but the central point is that when we too quickly turn our attention to post-recession issues, a fragile recovery can fall apart and send us spiraling downward once more.

The factor behind the second recovery of 1938 onward that is given too little attention in this article is the dramatic growth in military-related enterprises as World War II approached. We can take lessons from the 1930s, but we cannot use it as a uniform guide because the circumstances are just too different. It is easy for Americans to forget to that World War II was a serious international crisis long before we formally entered the conflict in late 1941. The Japanese began to overrun China in the early '30s; by the mid- to late-'30s Europe sensed the overwhelming danger Hitler's Germany posed; by 1939, the continent was at war. American industry fueled the European Allied war effort, in particular, years before we did any fighting--and furthermore, our military activity far outpaced the public rhetoric of 1939, 1940 and 1941, requiring additional manpower and materiel.

The last thing we need, of course, is (another) war. Our economic recovery must take place under the very different circumstances of protracted, limited conflict, a less cohesive series of security threats, a truly globalized international economic environment and in an era characterized by a more ideologically rigid, politically polarized party structure.

Even so, we would do well to carefully address the past parallels -- and important differences -- in our history. There are some positive signs, most notably in the Fed's understanding of the shortfalls in its 1930s fiscal policy shortfalls. Here's hoping we can continue to formulate more informed responses to the troubling dilemma in which we find ourselves.