With his usual clarity, Paul Krugman explains why the current economic situation is looking a lot like 1938. It's not a pretty picture, and what's so bracing about Krugman's analysis is that despite the note of hope on which he ends, it's hard to avoid the conclusion that our current political situation makes doing what's necessary all but impossible:
The economic moral is clear: when the economy is deeply depressed, the usual rules don’t apply. Austerity is self-defeating: when everyone tries to pay down debt at the same time, the result is depression and deflation, and debt problems grow even worse. And conversely, it is possible — indeed, necessary — for the nation as a whole to spend its way out of debt: a temporary surge of deficit spending, on a sufficient scale, can cure problems brought on by past excesses.
But the story of 1938 also shows how hard it is to apply these insights. Even under F.D.R., there was never the political will to do what was needed to end the Great Depression; its eventual resolution came essentially by accident.
Everyone knows that World War II was what ultimately pulled the country out of the Depression for good. What conservatives don't like to admit is that the war was, as Krugman says, "a burst of deficit-financed government spending, on a scale that would never have been approved otherwise." It's encouraging that the administration is proposing a round of infrastructure spending. Maybe it will pass, and maybe it won't. If it does, it will be good for the country's future; goodness knows we need more infrastructure investments. But it probably won't be enough to make a profound difference in the national economy, at least not in the short or medium term. And there don't seem to be any accidents of sufficient size in the offing.
-- Paul Waldman