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F.D.R’s Example Offers Obama Cautionary Lessons
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Roosevelt say experts was a great crisis manager but not great when it comes to policies to create jobs. His achievements were stabilizing the banking system with deposit insurance, government investment in banks, and restrictions on banking practices, creation of the SEC, and fireside chats that steadied the national mood. Unemployment when he took office in 1933 was 25% from 3% in 1929, and industrial production had dropped 40% since 1929. So FDR took office when a lot of the damage had already been done, compared to that Obama takes office earlier in this downturn. And Roosevelt did not fully grasp John Maynard Keynes's advice when he visited the White House in 1934. Keynes complained to Labor Secretary Ms. Perkins that he had thought the President was more literate economically speaking, while the President felt Keynes had a rigmarole of figures he did not understand. Roosevelt said of Keynes: "He must be a mathematician rather than a political economist." It took some time for government spending to take hold. Throughout the 1930's government spending remained around 20% as a share of the economy. Today its 35%. And the average unemployment stayed at stubborn 17% on average for the decade of the 1930's. It was not till the 1940's that things changed. Total government spending as a share of the economy reached 52% in 1942 with the onset of the war, and peaked at 70% in 1944 when the unemployment rate dropped to 1%. One lesson experts say is that its easier to stem unemployment and job losses by action earlier in the downward spiral through vigorous action by government. In retrospect because industrial production fell by 40% during the 1930's experts say Roosevelt was actually timid in his response. U.S. Fed chairman Bernanke is a student of this period and draws a similiar lesson from that period for vigorous action early in the crisis.
How the 1937 Pullback under FDR affects current economic policy under Bernanke and Yellen
01/27/2009
Economic policies under FDR in the 1930's. The Fed's Bernanke is acutely aware of the 1937 pullback and its lessons. This will influence current policy.
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The U.S. Fed's chairman Bernanke says the Fed will keep rates low till unemployment reaches 6.5% citing "the tremendous waste in human potential" of high unemplyment rates. As long as inflation remains subdued at 2% the Fed will continue its current policy of low rates. In 2013 the Fed will continue bond buying at the rate of $85 billion a month. If unemployment drops to 6.5%, but this is because more people are dropping out of the labor market the Fed will take this into account, says Bernanke. The Fed will also keep an eye out for asset bubbles in the economy.
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Why high unemployment and the high percentage of the long term unemployed is determining U.S. Federal Reserve interest rate policy in 2012-2014
01/27/2009
With 40% of the unemployed in the U.S. shown as long term unemployed, mismatch in skills and other structural problems with unemployment, the U.S. Federal Reserve policies of Fed chairman Bernanke are geared to addressing this problem.
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John Taylor on U.S. Federal Reserve policies and booms and busts in the U.S. economy and no clear exit strategy
01/27/2009
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Grouped Articles
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Sluggish Economic Recovery Proves Resilient
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The Dangers of an Interventionist Fed
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S.&P. 500 Dips After Fed Signals No New Stimulus
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Economic policy changes under FDR and lessons for the U.S. in 2011-2012
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Grouped Articles
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F.D.R’s Example Offers Obama Cautionary Lessons
New York Times 01/27/2009
Robert Shiller and "winter on the family farm" as a metaphor in tough economic times instead of "tightening the family belt"
01/27/2009
Shiller cites the "balanced budget theorem" of Salant and the economist Paul Samuelson during the FDR period. This showed that with taxes and expenditures going up during tough economic times the higher output leads to national income increasing by the amount of the tax. French president Hollande's plan to hire 60,000 teachers is of this kind, says shiller, because the higher taxes on incomes over 1 million euros supporting the hiring would increase national income by that amount.
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