The Amity Shlaes Identity: 1937 Déjà vu All Over Again?

 

FDR and Obama share the unique distinction in American history of being re-elected in the midst of a disastrous US economy. Is this a spurious historical anomaly? Or should we look for other similarities between 1937 and 2013? 

In 1937, a year after Election Day, industrial production plummeted by 34.5 percent, unemployment rose to 15%, and the Dow dropped by half – it was the “depression within the Depression.” Is this what we are looking at for 2013? A “recession within the Great Recession”? 

Amity Shlaes, in her Bloomberg column, provides some pithy comparisons between then and now:
http://www.bloomberg.com/news/2012-11-18/2013-looks-a-lot-like-1937-in-four-fearsome-ways.html
 

Roosevelt said: “I should like to have it said of my first administration that in it the forces of selfishness and of lust for power met their match. I should like to have it said of my second administration that in it these forces met their master.” Can you say “Class warfare”? Does this sound at all like Obama 2012?

FDR then raised taxes in 1937, at the same time that individuals began contributing into Social Security, when labor (via the Wagner Act) was able to push for higher wages from a struggling economy, and the banks’ ability to lend was hobbled by the Banking Act of 1935, which allowed the Fed to boost reserve requirements for banks. Sound at all like Fiscal Cliff 2013? Onset of Obamacare in 2013?

Figure 1 plots the Dow index (as a percentage of the peak) for January 1937 - 1938, and for the period January 2008 – 2014, where the start time of two periods have been aligned. Uncannily similar?

-> There is the Dow crash in 1932-33, corresponding to the Dow crash of 2008-9.

-> There is the near doubling of the Dow from 1933 to 1937, corresponding to the near doubling in the Dow from 2009 to 2012.

-> There is the post-election droop and rebound, occurring both in November 1936 and November 2012.

->  Finally there is the capitulation in the fall of 1937, with the Dow dropping by 50%. Will we see this in fall of 2013?

All present indications are that history is about to repeat itself. Why should it not? Taxes are going up. Lending is going down. Unemployment is going up. Spending is going up.

Just like 1937.