Following re-election in 1936, President Franklin Roosevelt worried about the increasing deficit, and he cut spending whereby unemployment increased to 19 percent in 1938.
Government borrowed and spent heavily, preparing for and fighting World War II. After the war, despite the deficit being 123 percent of GDP, the economy boomed (http://www.huppi.com/kangaroo/Timeline.htm).
This boom completed the recovery from the Great Depression, spurring the private sector and reducing the deficit.
In tough economic times with high unemployment, austerity causes higher unemployment whereas increased taxes and government spending is needed initially to jump-start the economy.
Citing this history, some economists wanted President Obama’s stimulus package to be larger and focus entirely on job creation, as intended, rather than partial tax cuts to get Republican votes needed for passage. Nevertheless, the stimulus did save or create between 1.4 and 3.3 million jobs, according to the nonpartisan Congressional Budget Office, enough to avert a depression but not a recession.
Now further government spending to create jobs and spur the private sector is needed. Additionally, to avoid another 2008-like economic collapse, we must re-enact regulations made in response to the Great Depression but repealed since 1980.
But with Republicans dead set on austerity, tax cuts for the rich, and deregulation, will we have to learn lessons from the Great Depression all over again?